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fundamentals 

of Political 
Economy 


THE 

CHINA 

BOOK 

PROJECT Translation and Commentary 

A wide-ranging series of carefully prepared translations of 
books published in China since 1949, each with an extended 
introduction by a Western scholar. 


The People of Taihang: An Anthology of Family Histories 

Edited with an introduction by Sidney L. Greenblatt 


Fundamentals of the Chinese Communist Party 

Edited with an introduction by Pierre M. Perrolle 


Shang Yang's Reforms and State Control in China 

Edited with an introduction by Li Yu-ning 


The Early Revolutionary Activities of Comrade Mao Tse-tung 

Edited by James C. Hsiung. Introduction by Stuart R. Schram 


The Rustication of Urban Youth in China: A Social Experiment 

Edited by Peter J. Seybolt. Introduction by Thomas P. Bernstein 


Workers and Workplaces in Revolutionary China 

Edited with an introduction by Stephen Andors 


Fundamentals ot Political Economy 

Edited wrth an introduction by George C Wang 



EDITED WITH AN 
INTRODUCTION BY 
GEORGE C. WANG 


Fundamentals 
of Political 
Economy 


M. E. SHARPE. INC.. PUBLISHER. WHITE PLAINS. NEW YORK 






Copyright f> 1077 by M. E. Sharpe. Inc. 

901 North Broadway, White Plains, New York 10603 

All rights reserved. No part of this booh may be reproduced 
in any form without written permission from the publisher. 

Library of Congress Catalog Card Number: 76-53709 
International Standard Book Number: 0-87332-095-6 

Printed in the United States of America 

From The China Book Project. Fundamentals of Political 
Economy is a translation of Chen$-chl]i chlny-chi hsueh chi- 
ch*u_chjh-shlh. 2 vols.. compiled by the "Fundamentals of 
Political Economy” Writing Group. Shanghai (Shanghai 
People's Press.. 1974). The translation!* of Chapters 1-13 
were first published in the journal Chinese Econo mic Studies . 
Copyright1975, 1976 by International Aria and Sciences 
Press, Inc. Translated by K. K. tuug. 



In Memory of My Parents 
Who Have Given Me Life 
and a Purpose 




Contents 


Introduction by George C. Wang xvii 


FUNDAMENTALS OF POLITICAL ECONOMY 
,f Youth Self-Education Series" Editors' Note 2 

1. Learn Some Political Economy 

The Object of Political Economy 3 

2. Social and Economic Systems Preceding 
Capitalism 

Production Relations in the Primitive, 

Slave, and Feudal Societies 16 

The Primitive Commune Established the 

Earliest Production Relations in Human History 16 

Slavery Was the Earliest System of Exploitation 21 

Feudalism Is Another Exploitative System 

Based on Class Conflicts 27 

3. The Analysis of Capitalist Society Must Start 
from Commodities 

Commodities, Money, and the Law of Value 37 

The Commodity Relation Embodies the Seeds 

of All Capitalist Contradictions 37 

Money Is a Natural Product of the 

Development of Commodity Exchange 46 

The Law of Value Is the Economic Law 

of Commodity Production 51 

Expose the Mystery of Commodity Fetishism 55 

vii 



viii Contents 


4. How the Capitalists Exploit and Oppress 
the Workers 

Capital and Surplus Value 58 

The Secret of the Exploitation of 

the Workers by the Capitalists 58 

The Cruel Means by Which the Capitalists 

Exploit and Oppress the Workers 64 

Wages Conceal the Exploitative Relation of Capitalism 71 


5. The Widening Gap between the Rich and the 


Poor in Capitalist Society 

Capital Accumulation and the Impoverishment 

of the Working Class 76 

Capital Accumulation Increases the 

Exploitation of the Workers 76 

The Unemployment of Workers Is the Inevitable 

Result of Capital Accumulation 80 

Capital Accumulation Leads to the 

Impoverishment of the Proletariat 88 

The Proletariat Is the Gravedigger of Capitalism 94 


6. The Process of the Movement of Capital Is 
the Process of Exploiting and Realizing 
Surplus Value 

The Circular Flow of Capital, the Turnover of 

Capital, and the Reproduction of Social Capital 98 

The Circulation of Capital Passes through 

Three Phases and Takes Three Forms 98 

The Turnover of Capital Is the Continual Production 

and Realization of Surplus Value 102 

Capitalist Reproduction Is Realized Spontaneously 

amidst Antagonistic Contradictions 109 

7. The Entire Bourgeoisie Exploits and 
Oppresses the Workers 

The Division of Surplus Labor 118 



Contents 


ix 


Competition among the Industrial Capitalists Leads 

to the Equalization of the Rate of Profit 118 

The Commercial Capitalists Share in the 

Surplus Value through Commodity Transactions 124 

The Financial Capitalists Share in Surplus 

Value through Loans and Borrowings 128 

The Landed Class Reaps without Sowing 130 

8. The Incurable Disease of Capitalism 

Economic Crises 138 

Economic Crises Are a Product of the Intensification 

of the Basic Contradictions in Capitalism 138 

The Worsening Tendency of Capitalist Economic Crises 144 

Economic Crises Undermine the Basis of Capitalist Rule 152 

9. The Unchanging Nature of Imperialism 

Imperialism Is Monopoly Capitalism 155 

Monopoly Is the Deep-rooted Economic 

Basis of Imperialism 156 

Financial Capital Is an Omnipotent Monopolist 162 

Capital Export Leads to World Domination 

by Financial Capital 167 

The International Monopoly Alliance Carved up 

the World Economically 170 

Competition among the Imperialist Powers for the 

Division and Redivision of the World 173 

10. Imperialism Is the Eve of Proletarian 
Socialist Revolution 

Imperialism Is Decaying and Moribund Capitalism 180 

Imperialism Is Parasitic or Decaying Capitalism 180 

Imperialism Is Dying Capitalism 189 


Soviet Revisionist Social Imperialism Joins 
the Ranks of World Imperialism 

Social Imperialism Is Socialism in Name 
but Imperialism in Substance 


199 



X 


Contents 


State Monopoly Capitalism Is the Main Economic 

Basis of Social Imperialism 200 

Soviet Revisionist "New International Relations" 

Is Another Name for Neocolonialism 207 

Soviet Revisionist Imperialism Is the Eve 

of a Second October Revolution 2 *4 

12. Socialist Society Ushers in a New Era in 
Human History 

Socialist Society and Proletarian Dictatorship 224 

Proletarian Revolution and Proletarian Dictatorship 
Are the Preconditions for the Emergence 

of Socialist Production Relations 225 

The Socialist Society Is a Fairly Long Historical Stage 231 

Socialist Society Constitutes the Beginning of 

People Consciously Creating History 243 

13. The Socialist System of Public Ownership 

Is the Basis of Socialist Production Relations 

The System of Socialist State Ownership and 

Collective Ownership by the Laboring Masses 251 

The Socialist System of State Ownership Is 

the Main Economic Basis of Proletarian Dictatorship 251 

There Will Be No Completed Socialism 

without Agricultural Socialization 262 

The Socialist Public Ownership System 

Consolidates and Develops through Struggle 271 

14. Establish Interpersonal Relations according 

to Socialist Principles 

People's Status and Their 

Interrelations in Socialist Production 283 

People's Status and Their Interrelations 

Have Undergone a Fundamental Change 283 

Consolidate and Develop Socialist 

Interrelations in the Course of Struggle 293 

The Immense Influence of the Superstructure 

on the Formation of Interrelations 304 



Contents xi 


15 Develop Socialist Production with Greater, 

Faster and Better Results at Lower Costs 

The Nature and Goal of Socialist Production 

and the Means of Achieving This Goal 311 

Socialist Public Ownership Has Fundamentally 

Changed the Nature of Social Production 311 

The Basic Economic Law of Socialism Embodies the 

Most Essential Relations of Socialist Production 322 

The Rapid Development of Socialist Production Is a 

Unity of Object Possibility and Subjective Initiative 330 

16. The Socialist Economy Is a Planned Economy 


Planned and Proportional Development 

of the National Economy 341 

The Law of Planned Development Regulates 

Socialist Production 341 

The Law of Value Still Affects Socialist Production 351 

The National Economic Plan Must 

Correctly Reflect Objective Laws 357 


17. We Must Rely on Agriculture as the Foundation 


and Industry as the Leading Factor in 
Developing the National Economy 

The Relations among Socialist Agriculture, 

Light Industry, and Heavy Industry 366 

Agriculture Is the Foundation of the National Economy 366 

Industry Is the Leading Factor in the Socialist Economy 380 

The National Economic Plan Must Follow the Order 
of Agriculture, Light Industry, and Heavy Industry 387 

Frugality Is an Important Principle in the 
Socialist Economy 

Practice Frugality and Economic Accounting 392 


Frugality Is a Necessity in Socialist Economic Development 392 

Economic Accounting Is an Important Means to 
Develop the Socialist Economy with Greater, 

Faster, and Better Results at Lower Costs 398 



xii Contents 


The System of Economic Accounting Is a Management 


System of the Socialist Enterprise 401 

19. Exchange Is an Economic Form that Relates 
Production to Consumption 

Socialist Exchange and Currency Circulation 414 

Socialist Exchange Possesses Brand-new 

Qualities and Characteristics 414 

Socialist Exchange Must Have Appropriate 

Forms of Organization 424 

Money Must Be the Servant of Socialist Exchange 429 


20. Correctly Handle the Relations among the 
State, the Collective, and the Individual 
The Distribution and Redistribution 


of the Socialist National Income 437 

The Socialist National Income Comes from 

the People and Is Spent on the People 437 

The Important Role of Public Finance in the Distribution 

and Redistribution of National Income 444 

The Proportional Relations between Accumulation and 
Consumption Are Overall Proportional Relations 448 


21. How are Personal Consumer Goods 
Distributed in Socialist Society ? 

The Socialist Principle of "From Each according 


to His Ability, to Each according to His Labor" 454 

"From Each according to His Ability, to Each according 
to His Labor" Is a Profound Revolution in 

the Distribution System 454 

There Are Two Basic Forms of Distribution 

of Personal Consumer Goods 462 

Nurture the Communist Labor Attitude 467 

22. Mutual Aid and Exchange 

The External Economic Relations of the Socialist State 473 

External Economic Relations Are a Component 

of the Socialist State's Foreign Relations 473 



Contents xiii 


Foreign Economic Aid Given by the Socialist 

State Is an Internationalist Obligation 478 

Actively Develop the Socialist State's Foreign Trade 482 

23. Communism Must Be Realized 

From the Socialist Society to the Communist Society 492 

Communism Is Irresistible 492 

The Realization of Communism Is 

a Profound Social Revolution 499 


About the Editor 506 





Acknowledgments 


The editor wishes to acknowledge his indebtedness to John 
Gurley, Professor of Economics at Stanford University; James 
Tobin, Professor of Economics at Yale University; Lloyd G. 
Reynolds, Professor of Economics at Yale University; and 
Victor D. Lippit, Assistant Professor of Economics at Univer¬ 
sity of California, Riverside, for reading the introduction and 
making comments and criticisms. Any errors and shortcomings 
that remain are the editor’s responsibility. He also wishes to 
thank Douglas Merwin of M. E. Sharpe, Inc., for his support 
and patience, and Mrs. Florence Kawagoye for her conscien¬ 
tious assistance. 


G.C.W. 




Introduction 


George C. Wang 


F undam entals of Politic al Economy is a popular introductory 
economics text published in the People's Republic of China in 
1974 as a part of the Youth Self-Education series designed par¬ 
ticularly for individual or group study. The primary purpose 
of this series, according to the preface, is to elevate the cul¬ 
tural level of the youths going down to the countryside, to ad¬ 
vance their knowledge of the social and natural sciences, as 
well as to arouse their class consciousness. This translation 
makes available a comprehensive and authentic text of the Chi¬ 
nese version of Marxist political economy, a version which dif¬ 
fers profoundly from that of the Soviet Union. (1) 

Fundamentals of Political Econom y was originally published 
in two volumes. The first volume (11 chapters) is a critical 
review of the historical development of capitalism. The second 
volume (12 chapters) deals with Marxist economic principles 
and the manner in which they are applied in China. 

Volume I is an informative historical account from a Chinese 
point of view and stands as a valuable primer on Marxist politi¬ 
cal economy in general. Volume II will be of particular interest 
to students of Marxism as it has been applied to the Chinese 
economy because it is the Chinese Communists, probably Mao 
Tse-tung more than anyone else, who first successfully applied 
Marxist theory to a semicolonial and semifeudal society with 
a predominantly agricultural economy (other than the Mongolian 
People's Republic). Today China's sweeping and thoroughgoing 


xvii 



xviii Introduction 


social changes, such as land reform and the socialization of the 
means of production, appeal to peoples in developing countries 
who are disappointed with the slow progress of development 
under capitalism. 

The principal features, some of which we will discuss in more 
detail below, of the Chinese model of economic development out¬ 
lined in Volume II may be characterized as follows: 

1. The Socialization of the Means of Production (Chapters 
12-15) 

2. Economic Planning and Proportional Growth between Sec¬ 
tors (Chapter 16) 

3. Agriculture Is the Foundation, and Industry Is the Leading 
Factor (Chapter 17) 

4. Practicing Economy and Capital Accumulation (Chapter 18) 

5. The Economic Structure by the Type of Ownership (Chap¬ 
ter 19) 

6. National Income and Its Distribution (Chapters 20-21) 

7. Foreign Trade and Foreign Aid, and the Future of Social¬ 
ism (Chapters 22-23) 

1. Socialization of the Mea ns of Production 

In the 1950s a transitory arrangement known as state-private 
joint operation was set up for the purpose of smoothing the 
transition of large (such as textiles) and middle-size enter¬ 
prises (such as hardwares) that had remained in private hands 
in a way that would make it possible to continue the enter¬ 
prises while changing the ownership system. There were two 
variants of joint operation — by enterprise and by trade. In the 
joint enterprise the state was a partner, participating in invest¬ 
ment and management. The private shares were to be paid off 
by the company out of its net revenue. In manufacturing, those 
producing the same type of products in the same locality were 
organized into a "special company" under the supervision of the 
Industrial Bureau of the local government. 

The broadening of state control over consumer goods began 
in November 1953, as grains and edible oil wefe put under a 



Introduction xix 


scheme known as ’’planned purchase and planned supply.” In 
September 1954, raw cotton and cotton cloth were brought into 
it as well. (2) The state set up an annual quota of procurement 
that had to be fulfilled under fixed procurement prices. The 
’’planned supply” part of the scheme meant some form of ration¬ 
ing in accordance with availabilities, based partly on con¬ 
sumers’ needs, and partly on the state's requirements for ex¬ 
port and for commodity reserves. The operation of these two 
schemes resulted in the elimination of an open market for con¬ 
trolled goods, although government-controlled grain markets 
continued to exist. 

Earlier, mainly between 1950 and 1952, lands confiscated from 
landlords and rich peasants were redistributed to poor peasants. 
But land redistribution was only a means to an end because 

(1) private ownership was incompatible with socialism, and 

(2) the landholding after the redistribution was too small to 
operate economically. This was especially true with regard 
to the large-scale capital formation necessary to raise agri¬ 
cultural output substantially. Initially, it was planned to make 
collectivization a gradual process, but the slow growth of agri¬ 
cultural output and the reappearance of such capitalist phenom¬ 
ena as speculation and increasing polarization of income led to 
a decision to accelerate the process. So in 1955 the CCP orga¬ 
nized peasants into agricultural producers' cooperatives in 
which farm tools and draft animals were collectively owned, 
and land, although still privately owned, was collectively oper¬ 
ated; the members were paid according to their work days and 
their land-contribution. A year later, the land too was collectiv¬ 
ized, and the members were paid only according to their labor. 
On August 29, 1958, the Party Central Committee published a 
directive demanding prompt merger of all producers' coopera¬ 
tives into communes embracing whole townships (hsiang), each 
comprising about 5,000 peasant households. The institutional¬ 
izing of the commune was partly for economic reasons — such 
as economies of scale; partly for political reasons — such as 
reducing disparities between urban areas and the countryside; 
and partly for social reasons — such as shortening the process 



xx Introduction 


of transition to communism. It was meant ultimately to help 
smooth the transition from collective ownership to ownership 
by the people as a whole. (3) Thus, by the end of the 1950s the 
economy was virtually socialized. 

2. Economic Planning 

The allocation of scarce resources between alternative and 
competing ends in China is determined not by the interplay of 
the forces of supply and demand but rather by systematic plan¬ 
ning. As Mao Tse-tung pointed out: 

A constant process of readjustment through state planning 
is needed to deal with the contradiction between production 
and the needs of society. Every year our country draws 
up an economic plan in order to establish a proper ratio 
between accumulation and consumption and to achieve a 
balance between production and needs. (4) 

In China stress has been placed on the proportional growth be¬ 
tween the following sectors: (1) agriculture and industry, (2) the 
sub-sectors within agriculture, (3) the sub-sectors within indus¬ 
try , (4) production and transportation, (5) material production 
and social welfare, (6) consumption and accumulation, (7) popu¬ 
lation growth and output, and (8) various regions. 

3. Agriculture Is the Foun dat ion 

In 1959 the ideological disputes between the PRC and the USSR 
reached their peak, and in 1960 the Soviet Union recalled all 
its technical advisers and canceled hundreds of contracts vital 
to China's industrialization. Compounded by difficulties that 
had developed in communes and by two consecutive years of 
floods and drought, and in the wake of the uneven results of the 
Great Leap Forward, the economy went into a period of con¬ 
solidation. It was against this background that the CCP re¬ 
oriented its economic policy to "taking agriculture as the foun- 



Introduction xxi 


dation and industry as the leading factor.” Mao pointed out: 

As China is a large agricultural country with over 80 per¬ 
cent of her population in the rural areas, industry must 
develop together with agriculture, for only thus can indus¬ 
try secure raw materials and a market, and only thus is it 
possible to accumulate fairly large funds for building a 
powerful heavy industry. (5) 

Reflecting the increased emphasis on agriculture, grain out¬ 
put was reported to have risen from a depressed level of 160 
million tons in 1960 to 240 million tons in 1970, (6) and to 274.9 
million tons in 1974. (7) If we exclude the initial period of ex¬ 
perimentation with the new institutional forms which the Great 
Leap Forward established, then output rose from 180 million 
tons in 1962 to 274.9 million tons in 1974. (8) In his address to 
the National People's Congress in 1975, the late Premier Chou 
En-lai indicated that between 1964 and 1974 the gross value of 
agricultural output increased by 51 percent, while that of indus¬ 
trial output increased by 190 percent. (9) 

4. Practicing E conom y 

One of the principal obstacles to economic development is the 
vicious cycle of low per capita income and a low rate of savings. 
As Mao Tse-tung pointed out, "We want to carry on large-scale 
construction, but our country is still very poor. One way of re¬ 
solving it is to make a sustained effort to practice strict econ¬ 
omy in every field." (10) Indeed, the ratio of saving to national 
income in China has risen since the 1950s. It reached as much 
as approximately 25 percent of national income (U) in 1958 and 
probably has remained well above 20 percent since then. 

To practice economy, it is necessary to set up a comprehen¬ 
sive economic accounting system. Economic accounting is de¬ 
fined as: the activities of recording, calculating, and analyzing 
the costs accrued in the process of production or rendering 
productive services. ( 12 ) In his 1942 directive concerning the 



xxii Introduction 


establishment of the economic accounting system, Mao Tse- 
tung called for "centralization in leadership, and decentraliza¬ 
tion in management." (13) The former means that the state 
would set up production targets for each state enterprise re¬ 
garding quality, quantity, variety, productivity, costs, accumu¬ 
lations, as well as targets for profit taxes. Decentralization 
in management means that, given these targets or constraints, 
each state enterprise is responsible for its own profit and loss. 
As indicated in Chapter 20, profits from state enterprises con¬ 
stitute the main source of capital accumulation in China. 

Each of the production units under the collective ownership 
is an independent accounting unit responsible for its own profit 
and loss. The collectives are constituent parts of the national 
planning system. They sell and purchase according to the 
prices set by the state. 

5. The Econ omic Str uc ture by the 
Types of Ownership 

In China, there are three major types of ownership: (1) owner¬ 
ship by the people as a whole, (2) collective ownership, and 
(3) private ownership. The characteristics of economic trans¬ 
actions are determined by the types of ownership of the means 
of production. In the third type of ownership prices are deter¬ 
mined within limits set by the state, by the supply and demand 
in the market. Goods exchanged according to market conditions 
include the products of household subsidiary activities and pro¬ 
duce grown in private plots, both of which may be sold at trade 
fairs. The characteristics of the second type of ownership are 
that (1) the prices of the products traded are fixed by the state, 

(2) the transactions are not for profit. The characteristic of 
the third type of ownership is that all production is determined 
by state planning. However, since the products are treated as 
commodities, they are governed by the law of value in the trans¬ 
actions, and money is used as the medium of exchange. 

State enterprises are owned by the people as a whole, and 
there are three types of exchanges among them. The first type 




Introduction xxiii 


of transaction is direct supply, that is, raw materials and equip¬ 
ment being delivered directly from the producing unit to the 
using unit. The second type of transaction consists of raw ma¬ 
terials or semi-finished products being shipped to a third state 
enterprise for further processing or fabrication before being 
delivered to consumption-oriented enterprises. Another type 
of transaction includes various assorted small articles such as 
bolts, nails, and screws which can be used either in production 
or in consumption. In 1973, state enterprises accounted for 
92.5 percent of China's retail trade, while collective enter¬ 
prises accounted for 7.3 percent. (14) 

6. National Income and Distribution 


The concept of national income adopted by China is that of 
material product, net of depreciation. The product for any one 
year is composed of net contributions from industry, agricul¬ 
ture, restaurants, freight transportation, and that part of trade 
and communications which serves the materially productive 
sectors. Omitted are not only passenger transportation and 
private use of communications, but also finance and insurance, 
public administration, army and internal security, education, 
public health, private housing, and all other professions that 
render services to the people. ( 15 ) 

In the state sector of the economy, national income by dis¬ 
tributive shares, or the primary distribution, in Chinese ter¬ 
minology, consists of two components: (1) wages and (2) state 
revenue from profit and taxes. The collective sector is similar, 
except that a collective enterprise may retain a portion of its 
profits for accumulation and welfare fund. 

The nonproductive sectors of the economy including educa¬ 
tional, cultural, social welfare, and others receive their share 
of the national income from what is called the "second-round" 
distribution of national income. In effect, funds are appropriated 
for these activities through the state budget. To a certain ex¬ 
tent, the distribution of national income among various sectors 
in a socialist economy can be carried out through adjusting the 



xxiv Introduction 


relative prices of products or factors of production. 

At present, 99 percent of the state revenue in China is derived 
from state enterprises and the collectives. (16) Expenditures 
for economic, social and cultural construction in the state bud¬ 
get rose from approximately 36 percent in 1960 to 70 percent 
in 1973. From 1949 to 1973, the value of agricultural produc¬ 
tion increased 1.8-fold; light industry, 12.8-fold; heavy indus¬ 
try, 59-fold; state revenue, 13-fold; and state expenditures, 

11-fold. 


Estimate s by Western Sc holar s 

The visit to Peking of President Nixon ushered in a new 
epoch in our perceptions of Chinese development. Many Amer¬ 
ican economists have toured the PRC, including Professors 
Wassily Leontief and John Kenneth Galbriath from Harvard 
University; James Tobin and Lloyd G. Reynolds from Yale Uni¬ 
versity; and John Gurley from Stanford. According to Tobin's 
estimate, the 1974 Chinese GNP in the Western concept of na¬ 
tional accounting was approximately $145 per capita. (17) This 
is close to Reynolds' estimate which amounted to $150 per 
capita. Taken literally, this would imply imminent starvation 
of the population. "The error in the calculation," Reynolds ex¬ 
plained, "arises from the fact that Chinese prices for basic 
consumer goods are much lower than U.S. prices; thus; the 
purchasing power of the yuan is much higher than the official 
exchange rate suggests." (18) 

Professor Gurley's 1971 appraisal of the PRC's economic 
performance is more optimistic. 

.... the Chinese people over the past two decades have 
made very remarkable economic advances (though not 
steadily) on almost all fronts. The basic, overriding eco¬ 
nomic fact about China is that for twenty years she has 
fed, clothed, and housed everyone, has kept them healthy, 
and has educated most. Millions have not starved; side¬ 
walks and streets have not been covered'with multitudes 



Introduction xxv 


of sleeping, begging, hungry, and illiterate human beings; 
millions are not disease-ridden.... In this respect, China 
has outperformed every underdeveloped country in the 
world.... China’s gains in the medical and public health 
fields are perhaps the most impressive of all. (19) 

However, some economists are less optimistic. For instance, 
Professors T. C. Liu and K. C. Yeh in their estimates of China's 
national income from 1952 to 1959 suggested that during 1952- 
57, the average annual rate of growth of net domestic product 
was 6 percent per year in constant 1952 prices. (20) 

A. G. Ashbrook, a U.S. government expert on China, in his 
review of the economy sums up the 1975 outlook as follows: 

.. .The economy of the People's Republic of China has 
proved an effective mechanism for supplying the minimum 
needs of the population, modernizing the industrial sector, 
and supporting a formidable defense establishment. With 
its floor under construction, its purposeful investment pro¬ 
gram, its control over migration to urban areas, and its 
hard-driven leadership, China has easily outdistanced other 
LCDs." (21) 

Finally, Professor Victor D. Lippit, in assessing China’s 
rapid economic growth, stressed the increase in the share of 
national income devoted to capital formation, an increase made 
compatible with rising mass consumption by the redistribution 
of income. He pointed out: 

The experience of China in raising her national savings - 
investment ratio by taking advantage of the situation cre¬ 
ated when revolution forced the traditional claimants on 
the nation's economic surplus to relinquish their claims 
is perhaps the most significant in world history. (22) 

Concluding Remarks 

With these varying and provocative interpretations of the Chi- 



xxvi Introduction 


nese developmental experience, we now turn to the translation 
of this key Chinese text on political economy. It is here that 
we develop a keener sense of how the Chinese perceive, through 
the Maoist prism, Marxian political economy as applied to their 
own set of priorities and goals for national development — pri¬ 
orities and goals that are in some cases unique to China and in 
some cases shared with other developing countries. 

At a time when a new, post-Mao Tse-tung, era is developing 
in China, when, judging at least from initial signs, there will 
be renewed emphasis on economic development and moderniza¬ 
tion of the means of production, we feel that Fundamental s of 
P olitical Econ omy provides a timely and valuable means to 
understanding the critical issues that are alive in China today. 

A Bibliographic Note 


Fund a mentals of P olitic al Econo my is a translation of Cheng- 
chih ching-chi hsueh chi-ch’u chih-shih, which was first pub¬ 
lished in May 1974 by the Shanghai People's Press. While this 
translation was in preparation, a second edition was published 
in December 1975. A comparison of the two printings reveals 
few revisions in content or in style. There are some changes 
however which should be mentioned. 

In the first printing, the subtitle of Chapter 17, reads: "The 
Relations among Socialist Agriculture, Light Industry, and 
Heavy Industry." In the second printing it has been revised to: 
"Correctly Handle the Relations between Agriculture and In¬ 
dustry, and Consolidate the Worker-Peasant Alliance." During 
the First Five-Year Plan (1953-57), first priority was accorded 
to heavy industry because it was believed that that would speed 
up industrialization. The new policy adopted at the beginning 
of the 1960s stated that agriculture is the foundation, and in¬ 
dustry is the leading factor. What is the justification for such 
a revision? In the second printing, the authors found a justifi¬ 
cation in the Communis t Man i festo , where Marx and Engels 
are quoted as referring to the "... combination of agriculture 
with manufacturing industries; gradual abolition of the distinc- 


Introduction xxvii 


tion between town and country." (23) 

In the first printing, the title of the last section of Chapter 21 
was "Nurture the Communist Labor Attitude.” In the second 
printing, it has been revised to: "Criticize Bourgeois Ideology 
and Advocate a Communist Labor Attitude." While both print¬ 
ings admit that the principle of distribution under socialism is 
"From each according to his ability, and to each according to 
his labor," the second printing contends that differentials in 
wage scales should not be wide; otherwise, they would dampen 
revolutionary enthusiasm. Moreover, it asserts that under 
favorable conditions, as socialist construction proceeds, ef¬ 
forts should be made toward the realization of "From each ac¬ 
cording to his ability, and to each according to his needs." The 
differences between the two versions are in stress, not in prin¬ 
ciple. Nowhere, however, is it indicated how wage scales are 
objectively determined. The title of Chapter 22 in the second 
edition has been revised to: "Mutual Aid, and Mutual Benefit 
on an Equal Basis." There is little revision in the content. 

A final note: in virtually all cases, quotations from Western 
works, such as those of Marx and Engels, and quotations from 
Mao's works were translated here directly from the Chinese. 

Notes 


1) To analyze the similarities and differences of the Chinese 
interpretation of Marxist economic principles and those of the 
Soviet Union, see A. Leontief s Political Economy, A Popular 
Introductory Text for Individual or Group Study (International 
Publishers), a standard Soviet text. 

2) Jen- min shou-ts'e (People's Handbook, 1955), Tientsin, 
pp. 456-458; Hsin Hua News Agency, October 15, 1954. 

3) Edgar Snow, R ed Chin a Today (revised and updated edition 
of The Other Side o f the River ), New York, Vintage Books, Ran¬ 
dom House, pp. 405-410. 

4) Mao Tse-tung, "On the Correct Handling of Contradictions 
among the People," in Mao Tse-tung and Lin P iao, Post Revolu¬ 
tionary Writings , edited by K. Fan, Doubleday Anchor, pp. 164-1657 



xxviii Introduction 


5) Mao Tse-tung, "On the Correct Handling of Contradictions 
among the People," p. 193. 

6) Alva Lewis Erisman, "China: Agriculture in the 1970s," 
in U.S. Congress, Joint Economic Committee, China: A Reas¬ 
sessment of the Economy . Washington, D.C. U.S. Government 
Printing Office, 1975, pp. 328-329. 

7) Output figure cited by Agriculture and Forestry Vice- 
Minister Yang Li-kung at a Food and Agricultural Organization 
Conference in Rome, November 4, 1975. Reported in Current 
S cene , Vol. XIV, No. 1 (January 1976) p. 20. 

8) Ibid. 

9) The Economist Intelligence Unit, Quarterly Economic 
Review : Chin a, Hong Kong, North Korea,^Jo. 1, 1975, p. 3. 

10) Mao Tse-tung, "On the Correct Handling of Contradic- j 
tions among the People," pp. 164-165. 

11) Po I-po, "The Correct Disposition of the Relationship 
between Accumulation and Consumption," Jen-min jih -pao (Peo¬ 
ple's Daily), September 20, 1956. 

12) Fundamentals of Political Economy, pp. 398-399. 

13) Ibid., p. 402. 

14) Ibid., p.445. 

15) Yueh Wei, "The Method of Computing National Income," 
Ching-chi y en -chiu (Economic Research), 3: 48-66, August 1956 

16) Fun damentals of Politic al Econ omy, p. 445. 

17) Chine se Econ o mic Stu dies, VIH: 3 (Spring 1975), pp. 

25-46. 

18) Ibid., pp. 8-24. 

19) John G. Gurley, "Capitalist and Maoist Economic De¬ 
velopment," Monthly Review , February 1971, pp. 15-35 and 
pp. 26-27. 

20) Ta-chung Liu, and Kung-chia Yeh, "Economic Develop¬ 
ment in Mainland China, Preliminary Estimate of the National 
Income of the Chinese Mainland, 1952-59," American Economic 
Review , Vol. LI, No. 2 (May 1961), pp. 489-498*. 

21) Joint Economic Committee, U.S. Congress, Compendium 
on China, A. G. Ashbrook, Jr., "China: Economic Overview, 
1975," July 10, 1975, Government Printing Office. 




Introduction xxix 


22) Victor D. Lippit, Land Re form and Econom ic Develop¬ 
me nt in China: A Stud y of Jns tttuti onalChange and Development 
Fin ance , White Plains, N.Y., M. E. Sharpe, Inc. (International 
Arts and Sciences Press), 1975, p. x. 

23) Karl Marx and Friedrich Engels, "Manifesto of the Com¬ 
munist Party," in Lewis S. Feuer, ed., Marx a nd Engels, Basic 
Writings on Politics and Philosoph y, New York, Doubleday and 
Company, 1959, p. 28. 






Economy 



"Youth Self-Education Series" Editors' Note 


Chairman Mao teaches us that "it is necessary for educated 
youths to go to the countryside to be reeducated by the poor an 
lower-middle peasants." In the past few years, in response to 
Chairman Mao's great call, thousands upon thousands of edu¬ 
cated youths rushed to China's countryside and frontier with 
revolutionary enthusiasm. They have earnestly studied works 
by Marx, Lenin, and Chairman Mao, actively participated in criti* 
cizing Lin Piao and rectifying the style of work, energetically 
fought in the front line of the Three Great Revolutionary Move¬ 
ments, resolutely followed the path of allying with the workers 
and peasants, and made new contributions to the building of a 
socialist countryside. Their awareness about class struggle 
and line struggle has been greatly elevated. Countless prole¬ 
tarian heroes have suddenly emerged, and a whole new genera 
tion of revolutionary youths is maturing healthily. This is a 
great victory for Chairman Mao's revolutionary line. 

Following Chairman Mao's instruction that "we must concern 
ourselves with the growth of the younger generation" and in or 
der to meet the need for self-study of educated youths who go 
to the countryside and mountainous areas, the "Youth's Self- 
Education Series" was written and published. This series is 
guided by Marxism-Leninism-Mao Tse-tung Thought and in¬ 
cludes fundamentals of philosophy, social sciences, natural | 
sciences and selections from the works of Lu Hsun. We hope 
its publication will contribute to the self-study of educated 
youths who go to the countryside and mountainous areas, help 
them to further elevate their awareness about line struggle, 
their political consciousness, and their cultural and scientific j 
levels so that they can advance along the road of being both 
red and expert and better fulfill the needs of building a social-] 
ist new countryside and other enterprises. 

We are grateful to the support given to the publication of thil 
series by the units concerned and the authors, and we welcome 
the suggestions and criticisms of readers of this series so that 
we can make improvements. 


Shanghai People's Press 






Learn Some Political Economy 


The Object of Political Economy* 


The great Chairman Mao teaches us over and over again to 
learn some political economy. This is not only a requirement 
for Communist Party members and revolutionary cadres; it is 
also a requirement for every combatant in the Three Great 
Revolutionary Struggles. To learn some political economy is 
very important for understanding Marxism, for penetratingly 
criticizing revisionism and transforming our world outlook of 
our own accord, and especially for a deeper appreciation of 
the Party's basic line and policies in the whole socialist his¬ 
torical stage. 

The youths fighting in the front lines of the countryside and 
factories are our country's hope and the successors to the pro¬ 
letarian revolutionary enterprise. To better engage in combat, 
to grow healthily and more quickly, the youths must learn 
some political economy. 

The Object of Political Economy 
Is Production Relations 


What kind of science is political economy ? We must start 
from its object of study. The object of study for Marxist 
political economy is production relations. Engels clearly 
pointed out that "what economics investigates is not things, 
but the relations among people and ultimately the relations 


*Hsueh i-tien cheng-chih ching-chi-hsxieh — cheng-chih 
ching-chi-hsueh ti tui-hsiang. 


3 



4 Fundamentals of Political Economy 


among classes." (1) How do production relations among people 
arise? We must start from man's productive activities. 

Chairman Mao said, "Marxists regard man's production ac¬ 
tivities as the most basic practical activities which determine 
all other activities." (2) But, over a hundred years ago, before 
Marxism was created, people did not have this scientific under¬ 
standing. Thinkers of the exploiting class all opposed this view¬ 
point. They either championed the fallacy that human society 
developed according to God's will or peddled the heresy of he¬ 
roes creating history. These so-called thinkers glossed over 
the simplest fact, namely, that people must first be able to 
feed, clothe, and shelter themselves before they can engage in 
politics, science, fine arts, and religious activities. If people 
need food, clothing, and shelter, they must engage in productive 
activities. Therefore, the direct production of material com¬ 
modities forms the basis of human societal development. With¬ 
out the productive activities of the laboring class, people can¬ 
not survive, and society cannot develop. It was Marx who dis¬ 
covered this law of development in human history. 

To produce, people must form certain mutual relationships. 
Isolated individuals cannot engage in production. Just as Marx 
pointed out: "To engage in production, people form certain as¬ 
sociations and relationships. Only within these social associa¬ 
tions and relationships can there be a relation between them 
and Nature and can there be production." (3) These relations 
formed by people during the production process are called pro¬ 
duction relations. In class society, these relations are ulti¬ 
mately reflected in class relationships. 

Production relations consist of three aspects: (1) the owner¬ 
ship pattern of the means of production; (2) people's roles in 
production and their mutual relations; (3) the pattern of product 
distribution. The ownership pattern refers to who owns the 
means of production (including means of labor, such as ma¬ 
chines, plants, and land, and objects of labor, such as raw ma¬ 
terials). In production relations, the most important aspect is 
the ownership pattern of the means of production. It is the ba¬ 
sis of production relations. The ownership pattern of the means 



Learn Some Political Economy 5 


of production determines the nature of production relations. 
Primitive society, slave society, feudal society, capitalist so¬ 
ciety, and socialist society in human societal development are 
classified according to the differences in their ownership pat¬ 
terns of the means of production. The ownership pattern deter¬ 
mines people’s roles in production and their mutual relations 
and thus the distribution pattern of products. 

To produce, it is necessary not only to have relations among 
people but also relations between man and Nature. Man must 
conquer and transform Nature. The power which man uses to 
conquer and transform Nature is called productive forces. Pro¬ 
ductive forces are composed of men and materials (namely, 
means of production). In productive forces, tools of production 
are the most important. The types of tools used for production 
reflect the magnitude of man’s power to conquer Nature. But 
we cannot regard tools of production as the determining factor 
in productive forces. ”The determining factor is man, not ma¬ 
terials.” (4) ”Of all things in the world, man is the most valu¬ 
able.” (5) Because tools have to be used by man, created by 
man, and renovated by man, without man, there would be no 
tools and no know-how. Without man, the best ’’automatic” 
tools are never really ’’automatic.” 

Production relations and productive forces comprise the two 
aspects of social production. In overall historical development, 
productive forces are generally revealed as the major deter¬ 
mining factor. Any transformation of production relations is 
necessarily a result of a certain development in productive 
forces. Production relations must be compatible with produc¬ 
tive forces. When certain production relations become incom¬ 
patible with the development of productive forces, these pro¬ 
duction relations must be replaced by some other new produc¬ 
tion relations which better match the development in productive 
forces. This is to say, the form of production relations is not 
determined by man's subjective will, but by the level of devel¬ 
opment of productive forces. Production relations must con¬ 
form to the development of productive forces. This is an objec¬ 
tive law which is not subject to change according to people's 



6 Fundamentals of Political Economy 


will. The emergence, development, and extinction of certain 
production relations unfold with a corresponding evolution of 
the contradictions of certain productive forces. Therefore, in 
the study of production relations, Marxist political economy 
also studies productive forces. 

In the overall development of history, if productive forces 
are revealed to be the major determining factor, does it mean 
that production relations are entirely passive compared with 
productive forces? Definitely not. When production relations 
are compatible with productive forces, they exert an active im 
petus to the development of productive forces. When productioi 
relations become incompatible with productive forces, they wi 
hinder the development of productive forces. As productive 
forces cannot be developed without changing production rela¬ 
tions, the transformation of production relations plays a majoi 
determining role. When old China was under the rule of impe¬ 
rialism, feudalism, and bureaucratic capitalism, the landlord 
and the comprador represented the most reactionary and back 
ward production relation of China. Productive forces were se¬ 
verely restricted and sabotaged. Before liberation, China did 
not have any machine-building industry or any automobile or 
airplane manufacturing. The annual output of steel was only 
several hundred thousand tons outside of Northeast China. Eve 
daily necessities were imported. Cloth was called foreign clot! 
umbrellas were called foreign umbrellas. Even a tiny nail was 
called a foreign nail. Under those circumstances, the over¬ 
throw of the rule of imperialism, feudalism, and bureaucratic 
capitalism, the transformation of comprador-feudal productior 
relations, and the establishment of socialist production rela¬ 
tions played an important role in promoting the development 
of productive forces. 

Big development of productive forces often occurs after the 
transformation of production relations. This is a universal la^ 
Big development of productive forces in capitalist society also 
occurred after the disintegration of feudal production relations 
induced by the bourgeois revolution and the rapid development 
of capitalist production relations. Take England, for example, 



Learn Some Political Economy 7 


where big development of productive forces occurred on the ba¬ 
sis of the bourgeois revolution in the seventeenth century and 
the Industrial Revolution of the late eighteenth and early nine¬ 
teenth centuries. The modern industries of France, Germany, 
the United States, and Japan rapidly developed only after the 
old superstructure and production relations had been trans¬ 
formed in various ways. On the issue of production relations 
and productive forces, one of the principal aspects of the long 
struggle between the Marxists and the Soviet revisionists has 
always been whether one should insist on taking the dialectical 
unity viewpoint or should expound the reactionary productivity- 
first viewpoint. Lin Piao, in league with Ch'en Po-ta, advocated 
that the major task after the Ninth Party Congress was to de¬ 
velop production. This is a copy of the revisionist fallacy in¬ 
serted into the Resolution of the Eighth Party Congress by Liu 
Shao-ch r i and Ch'en Po-ta which pointed out "the contradiction 
between the advanced socialist system and the backward social 
productive forces." In China, socialist production relations are 
basically compatible with the development of the productive 
forces. This opens up a new horizon for the development of the 
productive forces. But it also has its imperfect aspects. And 
these imperfections contradict the development of the produc¬ 
tive forces. The experience of socialist revolution teaches us 
that it is always the superior socialist system which promotes 
the development of the productive forces. It is always after the 
transformation of those parts of production relations which are 
incompatible with the development of the productive forces that 
the development of the productive forces is promoted. Where 
is "the contradiction between the advanced socialist system and 
the backward social productive forces"? The criminal intent 
of Liu Shao-ch'i's, Lin Piao's, and other similar swindlers' ad¬ 
vocacy of this fallacy was to vainly attempt to use the productivity - 
first viewpoint as a weapon to oppose the continuing revolution 
under the proletarian dictatorship and the basic Party policy 
laid down by Chairman Mao for the socialist stage. This is 
their impossible dream. 

Production relations must be compatible with productive forces. 



8 Fundamentals of Political Economy 


The development of productive forces necessitates the destruc¬ 
tion of old production relations which are not compatible with 
it and their replacement by new production relations which are 
compatible with its development. But the process of disintegra¬ 
tion of old production relations and the appearance of new pro¬ 
duction relations cannot be a smooth one. The transformation 
of old production relations and the establishment and perfection 
of new production relations are often realized only after revo¬ 
lutionary struggles. Therefore, if one wants to understand how 
old production relations are transformed and new production 
relations are established and perfected, it is not enough to ex¬ 
plain in terms of the contradictions between production relation 
and productive forces. The relations between the superstructur 
and the economic substructure must also be investigated. 

The superstructure refers to the national government, army, 
law, and other political systems and their corresponding ideo¬ 
logical forms, such as philosophy, literature, and fine arts. The 
economic substructure is production relations. "The sum total 
of these production relations forms the economic substructure 
of society, the real basis upon which a legal and political super* 
structure arises and to which definite social forms of conscious 
ness correspond." (6) This statement by Marx scientifically ex¬ 
plains the relation between the superstructure and the economic 
substructure. 

In the contradiction between the superstructure and the economic 
substructure, the latter, in general, is the determining force. 
The economic substructure determines the superstructure. Witt 
change in the economic substructure, "the whole immense super¬ 
structure is slowly or rapidly transformed." (7) This is to say, 
the old economic substructure has disintegrated, and the super¬ 
structure built upon this foundation must also disintegrate. But 
the rate of its disintegration varies. When reactionary state 
machinery has been transformed, the reactionary classes do 
not willingly bow out of the historical stage with the disappear¬ 
ance of the old economic substructure. They inevitably engage 
in prolonged and desperate struggle with the advanced classes 
in the political, ideological, and cultural spheres. In particular, 



Learn Some Political Economy 9 


old ideological forms associated with the overthrown classes 
remain for a long time. 

The superstructure is determined by the economic sub¬ 
structure. Once it is established, it has an immense negative 
effect on the economic substructure. Stalin pointed out, "The 
substructure creates its superstructure to serve its own estab¬ 
lishment and consolidation and to destroy the old substructure 
and its superstructure." (8) This explains why the super¬ 
structure always serves its economic substructure. The so¬ 
cialist superstructure serves its socialist economic sub¬ 
structure, and the capitalist superstructure serves its capital¬ 
ist economic substructure. 

In capitalist society, with the intensification of the contradic¬ 
tions between the socialization of production and the private 
ownership of means of production, there is an urgent need to 
replace capitalist private ownership with socialist public owner¬ 
ship. But the bourgeoisie controls the reactionary state ma¬ 
chinery and uses it to maintain the capitalist economic sub¬ 
structure. If the proletariat does not first smash the capitalist 
state machinery, it is impossible to destroy the capitalist eco¬ 
nomic system. The new and old revisionists' claim that "cap¬ 
italism can peacefully grow into socialism" is all a pack of lies. 

In socialist society, the superstructure and the economic sub¬ 
structure are basically compatible. But due to the existence of 
the bourgeoisie and its ideological forms, some bureaucratic 
styles of work in the state organs, and defects in certain parts 
of the state system, the consolidation, perfection, and develop¬ 
ment of the socialist economic substructure was hindered or 
undermined. We must makethe socialist superstructure better 
serve the socialist economic substructure. We must firmly grasp 
the struggle in the superstructure and carry the socialist revolu¬ 
tion in the superstructure to the end. 

Political economy touches upon the most practical and im¬ 
mediate interests of various classes and strata. It explains the 
most acute and intense problems of class struggle. Marxist 
political economy, like Marxist philosophy, publicly proclaims 
that it is at the service of proletarian politics. Political econ¬ 
omy is a science about class struggle. 



10 Fundamentals of Political Economy 


Political Econo m y Is the Theoretical Basis 
for the Part y’s Defining the Basic Line 

Marxist political economy was born with the appearance of 
the modern proletariat and the big productive forces — big in¬ 
dustries. Marx participated in the class struggles of his time. 
He used revolutionary materialist dialectics to analyze the cap 
italist society. He revealed the secrets of how the capitalists 
exploited the workers and scientifically demonstrated the con¬ 
tradictions between the socialization of production and capital¬ 
ist ownership. These contradictions were manifested as acute 
antagonism between the proletariat and the bourgeoisie. With 
the daily development of capitalist social contradictions, the 
proletariat, who acted as the gravediggers of the capitalist sys 
tern, daily strengthened. ’The knell of capitalist private prop¬ 
erty will soon be struck. The expropriators will be expropri¬ 
ated.” (9) From this, the revolutionary and scientific conclu¬ 
sion of the inevitable replacement of the capitalist system by 
the socialist system and the bourgeois dictatorship by the pro¬ 
letarian dictatorship was arrived at. 'This conclusion was ar¬ 
rived at by Marx according to the law of economic motion in 
modern society.” (10 ) Thus, Marxist political economy, along 
with Marxist philosophy and scientific socialism, became the 
theoretical basis for the proletarian political party to formu¬ 
late its basic policy. On the theoretical basis of Marxism and 
under capitalist conditions, the proletarian revolutionary lead¬ 
ers formulated for the proletarian party the basic political line 
of using revolutionary violence to seize political power. They 
guided the proletariat to struggle for the complete overthrow 
of the bourgeoisie and all exploiting classes, the replacement 
of bourgeois dictatorship by proletarian dictatorship, the tri¬ 
umph of socialism over capitalism, and the realization of com¬ 
munism. 

In socialist society, Marxist political economy still provides 
the theoretical basis for the proletarian party's formulation of 
basic lines. Chairman Mao has penetratingly analyzed the con¬ 
tradictions between socialist production relations and products 


Learn Some Political Economy 11 


forces and between the superstructure and the economic sub¬ 
structure and has demonstrated the long duration and complex¬ 
ity of class struggle and line struggle in the socialist period. 
On this theoretical basis, he further formulated the basic line 
for our Party for the entire socialist stage. This basic line 
tells us: "Socialist society covers a considerably long histori¬ 
cal period. Throughout this historical period, there are 
classes, class contradictions, and class struggle, there is the 
struggle between the socialist road and the capitalist road, 
there is the danger of capitalist restoration, and there is the 
threat of subversion and aggression by imperialism and social 
imperialism. These contradictions can be resolved only by de¬ 
pending on the theory of continued revolution under the dictator¬ 
ship of the proletariat and on practice under its guidance." (11) 
The Party’s basic line guides the Chinese people to persist in con¬ 
tinuing revolution under the proletarian dictatorship, to struggle 
for the consolidation of the proletarian dictatorship, the preven¬ 
tion of capitalist restoration, and the building of socialism, and to 
struggle for the great ideal of worldwide realization of communism. 

The basic task of socialist political economy is to study and 
illustrate the law of transformation from socialist production 
relations to communist production relations. Some understand¬ 
ing of political economy helps us to understand the objective 
law of socialist economic motion and the inevitability of the as¬ 
sociation, distinction, and development of various production 
relations. This will increase our understanding of the Party's 
basic line and elevate our awareness about implementing it. 

It is of fundamental importance to insist on the Party's basic 
line. It is simply "to carry out Marxism, not revisionism." To 
carry out Marxism, we must first learn Marxism. To oppose 
revisionism, we must be able to tell what revisionism is. But, 
Marxism consists of philosophy, political economy, and scien¬ 
tific socialism. If we want to understand Marxism, we must 
seriously study Marxist philosophy and scientific socialism, 
but we must also seriously study Marxist political economy. 

Marxist political economy is in opposition to all bourgeois 
and revisionist political economy, and it developed from the 



12 Fundamentals of Political Economy 


process of challenging bourgeois and revisionist political econ¬ 
omy. Learning Marxist political economy helps to distinguish 
between Marxism and revisionism, between socialism and cap¬ 
italism, and between the proletariat and the bourgeoisie. It will 
also correct tendencies toward deviation and elevate our ideo¬ 
logical awareness. 

In summary, we must study some political economy if we 
want to overcome anti-Party, anti-Marxist thinking, better 
carry through the Party's basic line for the socialist stage, 
more penetratingly unfold the criticism of Lin Piao and the 
rectification of the style of work, and score new and greater 
victories in the great socialist revolution and socialist enter¬ 
prise. 

Co mbine Theory with P ra ctice to 
Learn Political Economy Well 


Political economy is a demonstration and application of 
dialectical materialism and historical materialism. To learn 
political economy, we must follow the guidance of dialectical 
materialism and historical materialism. "The dialectical 
method attempts to understand every set pattern through its 
continuous motion and its temporary nature. It does not wor- 
shipanything, andit is critical and revolutionary innature." (12) 
This proletarian world outlook is in direct opposition to ideal-j 
ism and metaphysics. Only after we fully appreciate dialectical 
materialism and historical materialism and use them to obseH 
and analyze the law of motion in capitalist society and economy; 
can we understand why capitalism is bound to perish and social? 
ism will triumph. And only when we use them to observe and 
analyze the law of motion in socialist society and economy can 
we understand the duration and complexity of class struggle and 
line struggle in socialist society, and only then can we under¬ 
stand the general tendency of development from socialism to 
communism and why it cannot be averted by human will. This 
will strengthen our faith to struggle for the ultimate victory of 
the communist enterprise with full determination and without 





Learn Some Political Economy 13 


fear of sacrifice and difficulties. 

To study political economy, we must insist on the revolution¬ 
ary style of learning, which combines theory with practice. 
Chairman Mao teaches us: ,r We must thoroughly know Marxist 
theory and be able to apply it. The purpose of thoroughly know¬ 
ing it lies in applying it." (13 ) To combine theory and practice 
is a question of revolutionary discipline and a question of the 
nature of the Party. We must combine the study of political 
economy with the criticism of modern revisionism, with the 
criticism of the reactionary fallacies peddled by Liu Shao-ch'i, 
Lin Piao, and similar swindlers, with the Three Great Revolu¬ 
tionary Practices of class struggle, production struggle, and 
scientific experiment, and with the transformation of the world 
outlook. "Marxist philosophy considers that the most important 
question is not being able to explain the world through an under¬ 
standing of the laws of the objective world, but being able to use 
this understanding to transform the world." (14) 

Is it difficult to learn Marxist political economy? Yes. In the 
preface to the first edition of Capital, Marx said: "Every¬ 
thing starts out difficult. Every science is this way." In the 
concrete analysis of objective phenomena, Marxist political 
economy penetrates the surface, grasps the essence, and under¬ 
takes scientific abstraction. Thus, when we start, we often 
come across some terms and concepts which are difficult to 
understand. But Marxist political economy was written for the 
proletariat and talked about proletarian revolution. If only we 
seriously study it, we can understand it gradually. " T There are 
no difficult things, only people without sufficient resolve.* If it 
is not difficult to start, it is also feasible to do advanced study. 
All that is needed is the determination and the ability to learn." (15) 
Marx once pointed out: 'There is no smooth path in science. 
Only those who are not afraid of climbing the steep mountain 
paths can expect to reach the summit of brilliance." (16) Pro¬ 
letarian revolutionary leaders spent their whole lives estab¬ 
lishing and developing Marxist theory. Following their shining 
examples and diligently reading works by Marx, Lenin, and 
Chairman Mao, we should struggle to study for the mastery of 



14 Fundamentals of Political Economy 


this Marxist theoretical weapon, for the socialist revolution 
and the socialist construction enterprise, and for the world¬ 
wide realization of communism. 

Major Study References 

Marx, '’Introduction to A Cri ti que of Political Economy ." 
Engels, Anti-Diihring , Part 2, Chapter 1. 

Lenin, Karl M arx ("Marx's Economic Theories"). 
Chairman Mao, "On Contradiction," Section 4. 

Chairman Mao, "On the Correct Handling of the Contradic¬ 
tions among the People," Section 1. 

Review Prob lems 

1. Why is political economy a science of class struggle? 

2. Why do we say that Marxist political economy is an im¬ 
portant theoretical basis for the Party's basic line? 

3. How can one learn political economy well? 

Notes 


1) Engels, "Karl Marx 'A Critique of Political Economy,’" 
Selected Works of Marx and Engels , Vol. 2, Jen-min ch'u-pan- 
she, 1972, p. 123. 

2) "On Practice," Selected Works of Mao Tse-tung , Vol. 1, 
Jen-min ch'u-pan-she, 1968, p. 259. 

3) Marx, Wage L ab or and Capital , Selected Works of Marx 
and Engels , Vol. 1, Jen-min ch'u-pan-she, 1972, p. 362. 

4) "On Protracted War," Selected Works of Mao Tse-tung, 
Vol. 2, Jen-min ch'u-pan-she, 1968, p. 437. 

5) 'The Bankruptcy of the Idealist Conception of History," 

Selected Works of M ao Tse-tung , Vol. 4, Jen-min ch'u-pan-she 
1968, p.1401. - 

6) Marx, "Introduction to A Critiqu e of Po litica l Economy ." 
Selected Works of Marx and Engels, Vol. 2, Jen-min ch'u-pan- 
she, 1972, p. 82. 








Learn Some Political Economy 15 


7) Ibid., p. 83. 

8) Stalin, Marxism and Linguistics , Jen-min ch f u-pan-she, 
1971, P- 4. 

9) Marx, Capital , Vol. 1, Complete Works of Marx and 
Engels, Vol. 23, pp. 831-832. 

' 10) "Karl Marx," Sele cte d Works of Lenin , Vol. 2, Jen-min 
ch'u-pan-she, 1972, p. 599. 

11 ) "Constitution of the Chinese Communist Party," Col¬ 
lect ed Documents from the Tenth Chinese Communist Party 
Congress , Jen-min ch’u-pan-she, 1973, p. 44. 

12) Marx, "Epilogue to the Second Edition of Capital ," 
Complete Works of Marx and Engels, Vol. 23, p. 24. 

13) "The Rectification of the Party’s Style of Work," Selected 
Works of Mao Tse-tung , Vol. 3, Jen-min ch’u-pan-she, 1968, 
p. 773. 

14) "On Practice," Selected Works of Mao Tse-tung , Vol. 1, 
Jen-min ch’u-pan-she, 1968, p. 268. 

15) "Strategic Questions in China’s Revolutionary War,” 
Selected Works of Mao Tse-tung , Vol. 1, Jen-min ch’u-pan-she, 
1968, p. 165. 

16) Marx, "Preface to the French Edition of Capital, " 
Complete Works of Marx and Engels, Vol. 23, p. 26. 



2 

Social and Economic Systems 
Preceding Capitalism 

Production Relations in the Primitive, 
Slave, and Feudal Societies* 


The primitive, slave, and feudal societies are the three so¬ 
cietal systems which preceded capitalism. To comprehend the 
replacement and substitution of the production relations in thes< 
societies helps us to understand the historical process of the 
development of production relations in human society. It is es¬ 
pecially significant for the understanding of the origin and de¬ 
velopment of capitalist production relations and the historical 
law governing their inevitable replacement by socialist produc¬ 
tion relations. 

The Primitive Commune Established the Earliest 
Production Relations in Human History 


Labor Created Man 


The primitive society started from the separation of man 
from the animal world. Human societies appeared simulta¬ 
neously with the emergence of man. With man, the first chap¬ 
ter of human history began. 

The history of human society is about a million years long. 
Man's ancestors were a kind of highly developed ape-man. How 
did the ape-man develop into man? The key lies in labor. 


*Tzu-pen-chu-i i-ch'ien ti she-hui ching-chi chih-tu — yuan- 
shih she-hui, nu-li she-hui ho feng-chien she-hui ti sheng- 
ch'an kuan-hsi. 


16 





Precapitalist Social and Economic Systems 17 


Labor began with the making of tools. In the process from 
ape-man to man, natural objects were transformed into suitable 
tools. It may only have been the striking of one stone against 
another to make stone knives and axes or the shaping of branches 
into crude tools, but a great revolution appeared. Man sepa¬ 
rated himself from the animal world and could rely on his own 
hands to make tools for the transformation and conquest of Na¬ 
ture. Just as Engels said: Labor "is the first basic condition 
for human life. This is true to the extent that we must, in a 
certain sense, admit that labor created man himself.” (1) In 
the long process of labor, man learned how to make stone tools, 
hunt, and fish. He invented bows and arrows. Especially impor¬ 
tant was the discovery and use of fire. This greatly increased 
man's power to conquer and transform Nature. Engels highly 
valued this achievement. He said: "As far as worldwide libera¬ 
tion is concerned, the discovery of making fire through friction 
surpasses the importance of the invention of the steam engine.’ 
Because the discovery of making fire through friction enabled 
man to control a natural force, he was thus separated from the 
animal world." (2) From that time on, human society made its 
formal appearance on this earth. 

Production activities conducted after man's separation from 
the animal world were from the start a kind of social and group 
activity. "Every individual cooperated with other members of 
the society to form production relations to engage in production 
activities for the material needs of human life." (3) When the 
curtains of human social history were raised, the production 
relations were those of the primitive commune, and they were 
the first production relations in human history. 

Cl an Commune O wn ership Was the Bas is of the 
Primitive Commune Production Relations 


The primary social and economic organization of the primi¬ 
tive society was the clan commune united on the basis of kin¬ 
ship for the purpose of labor. Clan commune ownership was a 
primitive form of collective ownership. Land and other means 





18 Fundamentals of Political Economy 


of production were owned by all the members of the commune. 
At that time, because of the crude stone knives, axes, spears, 
bows, and arrows used, only by collective labor could the great 
natural forces be conquered. Therefore, individual ownership 
of means of production and products was not possible. This 
clan commune ownership system was the only form adopted 
under the low level of productive forces. Means of production 
collectively owned by the clan commune included production 
tools, land, forests, rivers, and livestock. Weapons, bows, and 
arrows were carried and used by individuals. 

In the primitive society, all able-bodied members partici¬ 
pated in productive labor. They employed a natural division of 
labor based on sex and age. Men went out to hunt, old men mad 
tools, and women harvested plants, managed household chores, 
and engaged in primitive agriculture. Children helped women 
do auxiliary labor. Interpersonal relations were primitive co¬ 
operative relations. 

Under the conditions of clan commune ownership and collec¬ 
tive labor, products were shared equally. Because of the low 
level of productive forces at that time, products obtained througi 
labor were only sufficient to maintain a minimum level of sub¬ 
sistence with little left over. If distribution had not been equal, 
some members of the clan would have starved, or the clan 
might have disintegrated. 

The economic substructure of the primitive society also pro¬ 
duced its corresponding superstructure. The primitive society 
successively passed through the matriarchal and patriarchal 
clan stages. The formation of the matriarchal clan was the re¬ 
sult of the more important positions occupied by women in pro¬ 
ductive activities. At that time, women were mainly occupied 
with primitive agriculture, and men with hunting. But hunting 
was more seasonal, and its results chancy. Agriculture was a 
more reliable source of means of livelihood. Therefore, social 
life evolved around the female. With the development of produc 
tive forces, agriculture advanced from its primitive form and 
animal husbandry was separated from agriculture. Men's im¬ 
portance in productive activities was elevated. With the transition 



Precapitalist Social and Economic Systems 19 


from group marriages centering around women to one-to-one 
marriages, women's positions were rendered more subordinate, 
ushering in the patriarchal clan. 

The clan council, composed of all the adult members of the 
clan, was the highest power organ in the clan commune. The 
clan council elected the clan chief and wartime military lead¬ 
ers and deliberated and decided on all important matters. 
[Lewis H.] Morgan, an American scholar, described in his An¬ 
cient Society the clan commune of the American Indians as follows: 
"All members were free persons and were obliged to protect 
each other's freedom. Everybody had equal rights. Not even 
the clan chief and military leaders could ask for any preferen¬ 
tial privilege. They were compatriots based on blood relations.” 
This superstructure of the clan was instrumental in consolidat¬ 
ing and developing the clan economic substructure and in ad¬ 
vancing the productive forces at that time. 

Chairman Mao points out: "The development of the Chinese 
people (here with reference mainly to the Han people) was sim¬ 
ilar to other peoples in the world. They passed through many 
tens of thousands of years ina classless, primitive society.” (4) 
The society connected with the "Peking Man" which was dis¬ 
covered in Chou-k’ou-tien suburb of Peking represented the 
earliest stage of China's primitive society. Many old sites and 
cultural relics from primitive societies discovered in many 
areas of China prove that matriarchal clan tribes once existed 
in the central region along the Yellow River basin and extended 
to Inner Mongolia, Heilungkiang, Sinkiang, Tibet, Kwangsi, 
Szechuan, and Yunnan. About five thousand years ago, tribes 
along the Yellow River and Yangtze River basins gradually be¬ 
came patriarchal clan communes. Before the Hsia dynasty in 
China, the primitive society existed for several hundred thou¬ 
sand years. 

Historical facts tell us that the primitive society had no pri¬ 
vate property, no classes, no class exploitation, or class op¬ 
pression. They strongly refute the fallacy that private property 
and classes have been with us from time immemorial. 



20 Fundamentals of Political Economy 


The Emergence of Private Property Led to 
the Collapse of the Primitive Commune 

In the course of development in the primitive society, with 
the development of productive forces, social division of labor 
arose. In the beginning, animal husbandry was separated from 
agriculture. Some tribes specialized in animal husbandry. Other 
tribes specialized in agriculture. This was the first major so¬ 
cial division of labor. Later on, handicraft activities were sep¬ 
arated from agriculture. This was the second major division of 
labor. Toward the end of the primitive society, iron was dis¬ 
covered. The appearance of iron symbolized the advancement 
of human society to a higher stage. But it also heralded the 
collapse of the primitive society. With the separate appearance 
of agriculture, animal husbandry, and handicraft activities, pro¬ 
duction for the purpose of exchange, namely commodity produc¬ 
tion, appeared. 

With the continual development of productive forces, some 
surplus was available after the maintenance of a basic level of 
subsistence. The two major divisions of labor increased labor 
productivity and promoted the development of agriculture, ani¬ 
mal husbandry, and handicraft activities. Surplus products and 
social wealth increased. Under these conditions, the possibility 
of some people expropriating the labor products of other people 
occurred. On the other hand, with the expansion of exchange, 
the possibility of the clan chief gradually converting commune 
property into his own private property also arose. The use of 
metal tools — especially iron axes, iron hoes, and iron plows — 
markedly increased labor productivity and created conditions 
for production on an individual household basis. The original 
collective production based on the clan gradually dissolved into 
individual production based on the household. Production changed 
from a collective to a private matter. Means of production and 
products also became private property. Then, land formerly 
collectively owned but assigned to individual households also 
passed into private hands. Private ownership appeared and the 
primitive commune disintegrated. 



Precapitalist Social and Economic Systems 21 


With the emergence of private ownership, inequality in the 
distribution of property among families arose. The clan chiefs 
continuously used their power to convert collective property 
into their private property and became the wealthiest house¬ 
holds in the clan. At the same time, as the wealth of these rich 
families increased and their scope of operation expanded, labor 
shortages were experienced. On the other hand, with the devel¬ 
opment of productive forces, the use of slave labor became pos¬ 
sible and profitable. As a result, prisoners of war were no 
longer slaughtered but were converted into slaves. Later on, 
some poor people of the clan also became slaves of the rich 
families. The exploitation of people by people emerged. 

With the development of production and the expansion of ex¬ 
change, the third major division of labor occurred. There arose 
merchants who specialized in commodity exchange. With the 
development of commodity exchange, money came into being. 
With the appearance of money, the rich families engaged in 
usury and accelerated the concentration and uneven distribution 
of wealth. As a result, wealth rapidly became concentrated in 
the hands of a few slave owners. On the other hand, the broad 
laboring masses were forced into slavery by poverty and bank¬ 
ruptcy, rapidly swelling the ranks of the slaves. Thus, society 
was separated into classes: the slave owners and the slaves. 
These two opposing classes made their first appearance in hu¬ 
man history. With the appearance of classes, the former clan 
council evolved from being society's public servant into being 
its master and became a tool by which the slave owners op¬ 
pressed the slaves. The state — the machinery for the oppres¬ 
sion of one class by another class — was born at that time. 

From that time up to the present, "all social history has been 
the history of class struggle." (5) 

Slavery Was the Earliest Syste m of E xploitation 

The C haracteristic of Production Relations in the 
Slave Soc iety Was the Ownership of the Means of 
Production and of Slaves by the Slave Owner 


In the slave society, the slave owner not only owned the means 





22 Fundamentals of Political Economy 


of production, but also slaves. The slave was merely a living 
tool under the absolute domination of the slave owner. The 
slave was not only exploited, he was treated as an animal, a 
sacrificial object, and a commodity. He could even be slaugh¬ 
tered by his owner. Slave labor was overt forced labor. The 
slave owner used brute force to make the slave work and in¬ 
discriminately tortured his slaves. To make it easier to catch 
runaway slaves, the slave owners even branded slaves and put 
them in fetters. The slave owner used the crudest means 
to extract surplus labor and products from the slave. All prod¬ 
ucts produced by the slave belonged to the slave owner. The 
slave was fed like an animal, just enough to keep him alive. 
This, then, was the production relation of the slave society. 

Chairman Mao points out, "About four thousand years have 
elapsed between the present and the time when the primitive 
society of the Chinese nation disintegrated into a class society, 
passing through the slave society and the feudal society." (6) 
China developed into a slave society after the Hsia dynasty. In 
the Yin dynasty, "chung-jen " and , f hsu-min" ["£A" and 
the "masses"] were all slaves. Clay burial figures unearthed in 
Yin-hs’u (the abandoned site of the capital of the Yin dynasty, in 
the vicinity of Hsiao-t’un-ts'un, An-yang, Honan Province) all 
had handcuffs. The male figures were cuffed with their hands 
behind them, and the females in front. These were reflections 
of slave lives at that time. The slaughter of slaves was even 
more hair-raising. The slave owner often sacrificed his slaves 
in sacrificial ceremonies. In some ceremonies during the Yin 
dynasty, more than a thousand people were killed. From the 
tombs of slave owners in the Yin dynasty, slaves were found 
buried alive or dead. They ranged from more than ten to sev¬ 
eral hundreds. Among them were both males and females, even 
children. There is no doubt that the slave society existed in 
China. 

But, Trotskyites like Ch’en Po-ta spread the fallacy that 
there was no slave society in China in a vain attempt to negate 
the universal truth of Marxist classification of human societies 
and to create evidence for their fallacy that communism was not 



Precapitalist Social and Economic Systems 23 


suited to Chinese conditions. This is reactionary in the ex¬ 
treme and utterly futile. 

Class Antagonism L e d to the Oppos ition 
betwe en Urban and Ru ra l Areas an d 
bet ween Mental and Physical Labor 

The earliest ancient city appeared at the end of the primitive 
society and was established at the central region of the tribal 
alliance for the purpose of defense. After the formation of the 
slave society and with the development of agriculture, handi¬ 
craft industry, and commodity exchange, the opposition between 
the city and the countryside arose. 

At that time, industrial products were handicraft products. 
The city was the center of the handicraft industry. The devel¬ 
opment of the handicraft industry was related to the develop¬ 
ment of commerce. Therefore, the city was also the center of 
commercial activities. In China’s Yin dynasty, commerce de¬ 
veloped rapidly. Commercial cities emerged. Yin and Shang 
[ shang is the Chinese term for commerce] are synonymous, 
and the Yin dynasty is also known as the Shang dynasty. Present- 
day Yin-hsu was the site of a fairly large commercial city in 
the Yin dynasty. 

The slave owner established a superstructure corresponding 
to the economic substructure of the slave society, and the city 
became the political center of the slave society. The slave 
owner paid special attention to strengthening the state machinery 
in the city to suppress the rebellion of slaves. Many slave own¬ 
ers, big merchants, usurers, and bureaucrats were concen¬ 
trated in the city, leading evil and extravagant lives. To satisfy 
their needs for recreation, the slave owner forced the slaves 
to build beautiful palaces, temples, theaters, and other public 
places. The city thus gradually developed into the cultural cen¬ 
ter of the slave society. 

Thus, the city in the slave society assumed a dominating eco¬ 
nomic, political, and ideological role and created opposition be¬ 
tween the city and the countryside. The opposition between the 



24 Fundamentals of Political Economy 


city and the countryside was a product of acute class contradic¬ 
tions. It was characterized by urban exploitation of the country¬ 
side. 

In the primitive society, all able-bodied people participated 
in labor. There was no specialization in mental labor. In the 
slave society, the situation was different. As a result of a large 
quantity of surplus products created by slave labor, it was pos¬ 
sible for the slave owners to divorce themselves from produc¬ 
tion labor. At that time, the division between mental and physi¬ 
cal labor was necessary and possible. This division between 
mental and physical labor was antagonistic right from the start. 
It was the privilege of the slave-owning class to enjoy cultural 
education. ’The class controlling the means of material pro¬ 
duction also controlled the means of mental production. There¬ 
fore, the thinking of those without means of mental production 
was generally under the influence of the ruling class." (7) The 
slave-owning class tried its best to spread the fallacy that "the 
mental workers rule others while the physical laborers are 
ruled by others." It used to its best advantage its politics, law, 
philosophy, and ideology as tools to rule the slaves and other 
laboring masses for the consolidation of the dictatorship of the 
slave owner. 

The Rebellion of Slaves Hastened 
the Collaps e of Slavery 

Slavery was an inevitable stage in human history. Its ap¬ 
pearance met the needs of existing productive forces. Under 
slavery, prisoners of war were no longer slaughtered enmasse. 
They were instead kept alive to work. This was helpful to the 
development of production. Because the slave owner possessed 
large amounts of means of production and labor, it was possible 
to organize production and cooperation on a large scale. With 
the use of metal tools, agriculture, animal husbandry, and hand¬ 
icraft industry developed rapidly. Agriculture became the most 
important component of the national economy. The horse, buf¬ 
falo, sheep, chicken, dog and pig were domesticated. By means 


Precapitalist Social and Economic Systems 25 


of cooperative efforts among a large number of handicraftsmen, 
a bronze ritual vessel [ssu-mu-ma o ta fang ting ] measuring 
110 centimeters in horizontal length, 77 centimeters in width, 
137 centimeters in height, and weighing 1,400 market catties, 
was cast with fine floral designs. From it we can infer the high 
production skills and workmanship already reached at that time. 

The production relations of the slave society promoted the 
development of productive forces to a certain extent. But these 
production relations embodied inherent contradictions to the 
further development of productive forces. These contradictions 
became more acute as productive forces developed. The broad 
masses of slaves could not bear the cruel exploitation and op¬ 
pression of the slave owner any longer. They slowed their 
work, ran away in large numbers, and purposely wrecked pro¬ 
duction tools. On the one hand, the slave owners increased 
their oppression, leadingto massive early death of slaves. On the 
other hand, they substituted heavy tools not easily subject to 
abuse. But the development of productive forces was thus re¬ 
stricted. The restriction on the development of productive 
forces also resulted from the contempt toward physical labor 
generated by the system. Bankrupt small producers preferred 
to wander around than to engage in physical labor. These things 
all showed that the production relations of slavery were already 
ill-suited to the development of productive forces. Its extinction 
was as inevitable as its emergence. 

At the end of the slave society, feudal production relations 
appeared. The ownership of land by the slave state was the ba¬ 
sis of the production relations in the slave society. In the Yin- 
Chou period of China, state ownership of land was in the form 
of ching-t'ien [well fields]. All land within the confines of 
chin g-t’ien was called "communal land." These "communal 
lands" and the slaves were at the disposal of the biggest slave 
owners — the feudal princes, nobles, and state officials ap¬ 
pointed by the Son of Heaven. With the development of produc¬ 
tive forces, some slave owners tried their best to force the 
slaves to bring under cultivation large amounts of "private 
land" so as to exploit more surplus labor. With the expansion 



26 Fundamentals of Political Economy 


of "private land," the system of "communal land" was under¬ 
mined. At this time, the landlord class emerged. They cham¬ 
pioned the "abolition of ching-t'ien and the demolition of raised 
paths between fields [used as boundaries]." Slaves gradually be¬ 
came serfs. The sprouts of feudal production relations flourished. 

The basic classes of the slave society were the slave-owning 
class and the slaves. Outside of these two classes were the 
free peasants and handicraftsmen. Slaves were at the bottom 
of the social strata and were subject to the crudest exploitation 
and oppression by the slave owners. All through the whole pe¬ 
riod of slavery, there was violent class struggle between the 
slaves and the slave owners. The Spring and Autumn period of 
China saw the transition from slavery to feudalism. A slave 
leader named Chih led 9,000 people rampaging across the land and 
invading the feudal lords. Slave rebellions seriously challenged 
the rule of the slave-owning class. In various countries of the 
world, slave uprisings were the theme of many heroic epics. 
For example, in the Roman period, Spartacus led the biggest 
rebellion with 120,000 participants. This rebellion shook the 
whole Roman Empire to its foundation. Violent slave rebellions 
dealt severe blows to the political power of the slave owners 
and hastened the collapse of slavery. While slavery disinte¬ 
grated, feudal production relations gradually matured. The 
newly emerging landlords representing feudal production rela¬ 
tions used the power of the laboring people to overthrow the ruli 
of the slave owners and established a government of landlords. 
Feudalism finally replaced slavery. 

The replacement of slavery by feudalism was historically in¬ 
evitable. In China, during the time of the great epoch-making 
social changes, Confucius, the reactionary proponent of the 
slave system, obstinately opposed any social reforms and re¬ 
garded the changes in production relations as "great evils." 

He resolutely opposed all the reform measures carried out by 
the new feudal lords, advocated the restoration of the old slave 
system, and hoped in vain to save the tottering social order. 

But it was all over. His efforts represented the futile struggle 
of a dying cause. 



Precapitalist Social and Economic Systems 27 


Feudalism Is Another Exploitative System 
Based on Class Conflicts 


Feudal Landownership Is the Economic 
Substructure of the Feudal Society 


The production relations of the feudal society were based on 
landownership by the landlord class and their almost complete 
control of serfs. The landlord owned most of the land. The 
peasants and serfs owned little or no land. They had to depend 
on farming the landlord’s land for a living. This way, they were 
fettered by the feudal land system. They lost their personal 
freedom and were subject to the landlord's cruel exploitation 
and oppression. 

The chief means by which the landlord exploited the peasants 
was through the collection of feudal rent from land rented to 
them. There were three kinds of feudal rents: labor rent, rent 
in kind, and money rent. 

Labor rent was prevalent in the early period of the feudal so¬ 
ciety. Labor rent consisted of the peasants using their own 
tools and working on the landlord-operated land at specified 
times. The peasants could work on their land only after work¬ 
ing for the landlord. Under this type of land rent, the relations 
between the exploiter and the exploited were quite clear-cut. 
The produce from the land operated by the peasants belonged 
to them. They were thus interested in the labor performed on 
it. The produce from the labor performed by the peasants on 
the land operated by the landlord belonged wholly to the land¬ 
lord. The peasants were naturally not enthusiastic about such 
labor. The landlord was well aware of this difference in atti¬ 
tude . To make the peasants work hard on the land operated by 
the landlord, the latter kept a number of foremen to enforce 
strict discipline. Therefore, under such a rent system, the re¬ 
lations between the oppressor and the oppressed, the ruling and 
ruled, were quite obvious. In the early period of feudalism, 
productive forces were quite weak. The landlord could not have 
expropriated the surplus labor of the peasants if he had not 




28 Fundamentals of Political Economy 


relied on direct coercion. This kind of feudal rent met with 
violent resistance from the peasants. 

Later, under the impetus of the development of productive 
forces and out of a desire for greater exploitation and less vis¬ 
ibility of their exploitative intent, the landlord adopted rent in 
kind in place of labor rent. Under rent in kind, the peasant no 
longer worked under the supervision of the landlord. He did 
not have to work on the land operated by the landlord. The 
peasant could control all his labor. But he had to turn in sur¬ 
plus produce in kind to the landlord at specified intervals. Com 
pared with labor rent, rent in kind was instrumental in improv¬ 
ing know-how and labor productivity to some extent. But rent 
in kind often represented 50 percent or even 70 to 80 percent 
of the peasants' harvests. To maintain a minimum level of sub 
sistence, the peasants had to extend their working hours and 
raise their labor intensity. Even so, the peasants were unable 
to lead a life very far above extreme poverty. 

Money rent appeared in late feudal society. Productive force 
were then much higher than before. The relations between 
money and commodities were widely developed. To satisfy his 
manifold needs for a luxurious and extravagant life, the land¬ 
lord needed ever more money. Under such conditions, money 
rent appeared. Under money rent, the peasants sold their pro¬ 
duce in the market in exchange for money to pay rent. Thus th< 
peasants were not only exploited by the landlord, but also by 
merchant middlemen. When harvests were good, the merchant! 
depressed prices to squeeze every drop of sweat and blood fron 
the peasants. As a result, the peasants' livelihood was even 
more pitiable, and they were frequently at the brink of bank¬ 
ruptcy. 

In the feudal society, the broad masses of peasants were un¬ 
der the exploitation of feudal rent. They also had to pay heavy 
taxes to the feudal state and were subject to the exploitation of 
usurers. The landlord colluded with the bureaucrats and the 
army to plunder the peasants' land, steal their wealth, and fore 
them to engage in involuntary unpaid labor. The broad masses 
of peasants were subject to all sorts of extraeconomic exploitation 



Precapitalist Social and Economic Systems 29 


Peasant Rebelli ons Reflect ed th e I ncreasingl y Acute Class 
Contradictions in the Feudal Society 


The replacement of the slave society by the feudal society 
was a step forward in history. The feudal production relations 
were conducive to promoting productive forces in the early 
stage of feudal society. Agricultural production techniques 
were elevated, and tools improved. The applications of iron in¬ 
struments to production were disseminated, both the variety 
and quantity of crops were increased, and handicraft industry 
was thriving. In the Warring States period of China, large- 
scale water conservancy projects, such as the Tu-chiang Dike 
in Szechuan Province, were constructed. Through additional 
construction and maintenance during various dynasties, Tu- 
chiang Dike still serves a very useful purpose at present. Salt 
baking, metallurgy, silk goods, spinning and weaving, porcelain 
and pottery, and embroidery were quite well developed in 
China’s feudal society. The compass, gunpowder, paper, and 
block printing were invented very early. 

However, production under feudal production relations was 
basically small-scale production on a household basis. This 
small-scale production was not conducive to the further devel¬ 
opment of productive forces. The broad masses of peasants 
under feudal production relations were especially subject to 
cruel exploitation and oppression with little possibility for de¬ 
veloping production. The contradictions between feudal produc¬ 
tion relations and productive forces were reflected as class 
contradictions between the landlord and the peasant. This was 
the major contradiction in feudal society. The highest manifes¬ 
tation of this contradiction was armed rebellion by the broad 
masses of peasants to resist the rule of the landlord. These 
rebellions and struggles were characteristic of the whole feu¬ 
dal period. About 200 B.C., soon after Ch'in Shih-huang unified 
China and established the first feudal dictatorship, the first 
great peasant rebellion in China’s history exploded — the re¬ 
bellion led by Ch’en Sheng and Wu Kuang. After that, during the 
more than two thousand years before the Taiping Rebellion in 



30 Fundamentals of Political Economy 


the mid-nineteenth century, several hundred small and large 
peasant rebellions and peasant revolutionary wars were re¬ 
corded. The size and number of peasant uprisings in Chinese 
history broke world records. "Only these peasant class strug¬ 
gles, peasant rebellions, and peasant wars were the real motive 
force of historical development. Because every major peasant 
rebellion and peasant war dealt blows to the contemporary feu¬ 
dal rule, they thus promoted the development of social produc¬ 
tive forces to some extent." (8) However, renegades like Ch'en 
Po-ta attributed the development of social productive forces to 
the "concessions" made by the feudal ruling class. This runs 
counter to historical facts. In history, the landlords never madi 
concessions to peasant rebellions. They always resorted to 
bloodthirsty suppression, counterattacks, and trickery, but 
never to "concessions." Renegade Ch'en Po-ta's theory about 
"concessions" was purely an attempt to beautify the landlords. 

The Development of a Commodity Economy and 
Pr imitive Accumulation Gave Birth to an d 
Promoted C apitalist Production Relations 

In the late feudal period, with the further development of a 
commodity economy, capitalist production relations arose. 

Simple commodity production in the feudal society was based 
on private ownership and individual labor. The purpose of pro¬ 
duction was exchange. Small commodity producers had to sell 
their products in the market. But because every commodity 
producer had different production conditions, skills, and labor 
intensity, labor spent on each type of commodity varied. On the 
other hand, similar commodities were sold at the same price. 
This constituted a contradiction. With the development of this 
contradiction, a small number of small commodity producers 
with better conditions prospered. But the majority of small 
commodity producers with poorer production conditions were 
increasingly impoverished. Thus, the simple commodity pro¬ 
ducers were polarized. 

In the feudal society, craft guilds were often formed to prevent 



Precapitalist Social and Economic Systems 31 


competition among handicraftsmen in the same line or from 
handicraftsmen from other areas or lines. Members of the 
guilds had to obey guild regulations. In the handicraft guild, 
there were the master, journeyman, and apprentice. The rela¬ 
tions between the master and the journeyman and apprentice 
were basically feudal with slight exploitation. These guilds 
limited the polarization among the small commodity producers. 
But with the development of a commodity economy, some com¬ 
paratively prosperous masters were unwilling to obey the guild 
regulations. They indiscriminately increased the number of 
journeymen and apprentices, lengthened their labor time, im¬ 
proved production techniques, and gradually converted their 
journeymen and apprentices into hired hands. Other bankrupt 
masters, journeymen, and apprentices gradually joined the ranks 
of hired hands. On the basis of polarization, there gradually ap¬ 
peared the capitalist relations of employment. 

In the process of polarization among the small commodity 
producers and the emergence of capitalist production relations, 
commercial capital played an important role. The merchant 
was originally the middleman in commodity exchange. Later 
he became a contract merchant who contracted to sell the prod¬ 
ucts of the commodity producers. He later supplied raw mate¬ 
rials and even tools to the small producers who were to produce 
products at specified times and of a certain quality, quantity, 
type, and specification. Thus, the small commodity producer 
was entirely controlled by the merchant and became a hired 
hand. And the merchant himself became an industrial capitalist. 

In the countryside, during the period of late feudal society, 
because of the development of a commodity economy, the land¬ 
lord class gradually converted to money rents. This daily in¬ 
creased the peasants 1 dependence on markets and hastened 
their polarization. The majority of peasants went bankrupt and 
degenerated into hired farm hands. A few elevated themselves 
to become rich peasants and later agricultural capitalists. 

Thus, capitalist production relations gradually established 
themselves in feudal society. In China’s late feudal society, 
with the development of a commodity economy, the seeds of 



32 Fundamentals of Political Economy 


capitalist production relations were about to sprout. Without 
the influence of foreign capitalism, China was gradually to de¬ 
velop into a capitalist society. 

The establishment of capitalist production relations in feudal 
society was closely related to the development of productive 
forces. In the beginning, the small workshops of the handi¬ 
craftsmen became large capitalist workshops. In these work¬ 
shops, hand labor was still the rule. But with many workers 
working together under unified capitalist command, simple co¬ 
operation was possible, forming a new productive force. Later, 
capitalist simple cooperation developed into capitalist factory 
handicraft industry. The characteristic of the factory handi¬ 
craft industry was division of labor among workers producing 
the same commodity with each specializing in one process. It 
simplified labor processes and improved labor productivity by 
intensifying labor input. It also created the conditions for the 
substitution of machine operation for hand operation. 

The development of capitalist production relations depended 
on two basic conditions: First, there had to be a large body of 
proletariat who could freely sell their labor. Second, there had 
to be a prior accumulation of a large amount of pecuniary wealth 
To facilitate the development of capitalist production relations, 
the bourgeoisie used violence to create these two conditions. 
Therefore, in the development of capitalism, there was a pro¬ 
cess of primitive accumulation. 

An important method of primitive accumulation was exploita¬ 
tion of the peasant. England, where capitalist production relations 
first developed, was a typical example. During the more than 
three hundred years from the 1470s until the early nineteenth 
century, the English ruling class launched the "enclosure" 
movement by forcibly taking land from the peasants. The mod¬ 
em industry of England started from wool textiles. The wool 
textile industry required a large amount of wool, thus forcing 
up its price. The big landlords and farm operators enclosed 
land wherever they could to raise sheep to cash in on the for¬ 
tune. They forcibly evicted peasants from their land, demol¬ 
ished and burned down their houses, and expropriated large 



Precapitalist Social and Economic Systems 33 


amounts of means of production and means of livelihood. The 
enclosure movement forced a large number of peasants to leave 
their native places and wander far afield begging for their live¬ 
lihood. Following this, the English ruling class promulgated 
various bloodstained legislation to forbid the peasants from 
drifting and force them to accept hired employment under harsh 
conditions. 

The plundering of pecuniary wealth was another important 
method of primitive accumulation. The European bourgeoisie 
resorted to armed invasions of Asia, Africa, America, and 
Australia to establish the colonial system. They launched com¬ 
mercial warfare and plundered the colonies' material resources 
and pecuniary wealth in order to amass capital for the estab¬ 
lishment of large-scale capitalist production. 

Therefore, the process of primitive accumulation was the 
process of forcing the separation of the direct producers from 
their means of production and concentrating pecuniary wealth 
in the hands of the capitalists as capital. Marx penetratingly 
pointed out, "This history of expropriation (of the direct pro¬ 
ducers by the bourgeoisie) was written with blood and fire into 
the human chronology." (9) The process of primitive accumula¬ 
tion vividly demonstrated that the capitalists did not "start 
from scratch," but depended entirely on plundering. "Capital 
comes dripping from head to foot, from every pore, with blood 
and dirt." (10) 

Bourgeois Revolution Declared 
the Collapse of Feudalism 


The birth and development of capitalist production relations 
in feudal society was severely restricted by feudal production 
relations and their superstructure. They were prevented from 
assuming a dominating role in feudal society because the feu¬ 
dal ruling class would never willingly retire from the histori¬ 
cal stage. They inevitably used the state machinery in their 
control to protect the outdated feudal system. The bourgeoisie 
and the intellectuals representing capitalist production relations 




34 Fundamentals of Political Economy 


publicized capitalist production relations as "manifestations 01 
eternity and rationality" and "an eternal law of Nature." They 
championed so-called "freedom, equality, and universal love" 
and denounced feudalism in their efforts to prepare public opii 
ion for the bourgeois revolution to overthrow feudalism. In the 
bourgeois revolution, the major class forces were the peasant! 
the proletariat, and the bourgeoisie. The peasants were the 
major force, but not the representatives of the new productive 
forces. The proletariat had not formed its independent politi¬ 
cal force, so the bourgeoisie assumed the leadership of the 
bourgeois revolution. 

In old China, because it was a semi feudal and semicolonial 
society, the bourgeoisie was divided into two parts. One was 
the bureaucratic bourgeoisie. It depended on imperialism. 
Along with the landlords, its members represented the most 
backward and most reactionary production relations. They 
were the targets of the Chinese bourgeois democratic revolu¬ 
tion. The second part was the national bourgeoisie. It was sub 
ject to the oppression and restriction of imperialism and feu¬ 
dalism on the one hand but was also closely related to them on 
the other. This determined that the national bourgeoisie was 
a force on the side of democratic revolution under some condi 
tions. But it was also weak and unstable. Therefore, "it was 
determined historically that the task of anti-imperialist and 
antifeudal bourgeois democratic revolution could not be com¬ 
pleted by bourgeois leadership, but only by proletarian leader¬ 
ship." (11) , 

Although the bourgeois revolution was a revolution in which 
one form of exploitation replaced another, this revolution also 
had its reversals. In the course of the revolution, there were 
acute class struggles involving attempted restorations by the 
feudal class and opposition to restorations by the bourgeoisie. 
England started its bourgeois revolution in 1640. Not until af¬ 
ter two internal wars was Charles I, a representative of the 
Stuarts, executed. In 1660, Charles n, another representative 
of the Stuarts, again attempted restoration. In 1688, the En¬ 
glish bourgeoisie invited the Prince of Orange (William HI) 



Precapitalist Social and Economic Systems 35 


from Holland to overthrow the Stuart House. Only then was the 
bourgeois dictatorship stabilized. In France, in the eighty-six 
years from 1789 when the bourgeois revolution exploded until 
1875 when the Third Republic was formed, advances were 
mixed with retreats, republics with monarchies, revolutionary 
terror with anti revolutionary terror, internal with external 
wars, conquests of with conquests by foreign countries, without 
a moment of peace and stability. Even so, because the feudal 
system was rotten, it still could not escape its extinction no 
matter how hard it tried to struggle. The replacement of feu¬ 
dalism by capitalism was inevitable. 

Major Study References 


Marx and Engels, Communist Manifesto . 

Engels, T he Origin of the Family, Private Prop e rty and 
the State . 

Chairman Mao, ’’The Analysis of Chinese Social Classes.” 
Chairman Mao, ’’The Chinese Revolution and the Chinese Com¬ 
munist Party,” Chapter 1. 

Revie w Problems 

1. How did private ownership, classes, and the state arise? 

2. How did the contradictions between production relations 
and productive forces in the slave society and the feudal soci¬ 
ety manifest themselves in class struggle ? 

3. What were the major conditions for the birth and develop¬ 
ment of capitalist production relations ? 

Notes 


1) Engels, "The Role of Labor in the Transformation of Apes 
into Man,” C omplete Works of Marx and Engels , Vol. 3, Jen- 
min ch’u-pan-she, 1972, p. 508. 

2) Engels, Anti-Duhring , Selected Works of Marx and E n¬ 
gels , Jen-min ch'u-pan-she, 1972, p. 154. 




36 Fundamentals of Political Economy 


3) "On Practice," Selected Works of Mao Tse-tung , Vol. 1 
Jen-min ch'u-pan-she, 1968, p. 260. 

4) "The Chinese Revolution and the Chinese Communist Part 
Sele cted Works of Mao Tse-tung , Vol. 2, Jen-min ch’u-pan-sh 
1968, p.585. 

5) Communist Manifesto , Selected Works of Marx and 
Engels, Vol. 1, Jen-min ch’u-pan-she, 1972, p. 250. 

6) " The Chinese Revolution and the Chinese Communist Part 
Selected Works of Mao Tse-tung, Vol. 2, Jen-min ch’u-pan-sh 
T%¥, p.585. 

7) The German Ideology , Selected Works of Marx and 
Engels, Vol. 1, Jen-min ch'u-pan-she, 1972, p. 52. 

8) "The Chinese Revolution and the Chinese Communist Part; 
Selected Works of Mao Tse-tung, Vol. 2, Jen-min ch'u-pan-sh 
1968, p. 588. 

9) Marx, Capital, Vol. 1, Complete Works of Marx and 
Engels , Vol. 23, p. 783. 

10) Ibid., p. 829. 

11) "The Task of the Chinese Communist Party in the Anti- 
Japanese Period,” Selected Works of Mao Tse-tung , Vol. 1, 
Jen-min ch'u-pan-she, 1968, p. 241. 








3 

The Analysis of Capitalist Society 
Must Start from Commodities 


Commodities, Money, and the Law of Value* 


Chairman Mao points out: Marx ’’started from the simplest 
capitalist factor — commodities — to analyze closely the eco¬ 
nomic structure of the capitalist society.” (1) Why did Marx 
start from commodities in his analysis of capitalist economy ? 
This is because every product in the capitalist society is a 
commodity. Not only are means of production and consumer 
goods commodities, even human labor is a commodity. Here, 
social wealth is reflected as a large amount of accumulated 
commodities. Commodities become the cell structures of the 
capitalist economy. In commodities are embodied all the con¬ 
tradictions of capitalism. Therefore, the study of capitalism 
must start from an analysis of commodities. 

The Commodity Relation Embodies the Seeds 
of All Capitalist Contradictions 


Commodities Consist of Two Components : 
A Use Value and an Exchange Value 


Commodities, the product of labor, are for sale and exchange. 
They went through a historical process of birth and develop¬ 
ment. In the primitive society, people labored together. The 
products obtained were all consumed by the members of the 


*Chieh-p’o tzu-pen-chu-i she-hui pi-hsu ts’ung shang-p r in 
k'ai-shih — shang-p'in, huo-pi, chia-chih kuei-lii. 


37 





38 Fundamentals of Political Economy 


primitive commune. Under these conditions, there was no ex¬ 
change or production of commodities. The exchange and pro¬ 
duction of commodities developed gradually in the slave and 
feudal society. Their development reached a peak in the cap¬ 
italist world. 

What are the basic characteristics of commodities which are 
the cells of the capitalist economy ? 

Since commodities are labor products for exchange, they 
must first of all be useful to people. For example, rice can fill 
our stomachs, clothes can keep us warm, iron and steel can be 
made into machines, and tractors can plow. This usefulness 
of a commodity is called use value. Obviously, if something is 
not useful, nobody needs it. It cannot, therefore, qualify as a 
commodity. 

Use value is a necessary condition of a commodity but not 
the only condition. Not all useful things are commodities. For 
example, air and sunshine are basic necessities for our sur¬ 
vival, but they are not labor products. They are free goods and 
therefore not commodities. Further, though food grains and 
vegetables are labor products, if they are produced for one's 
own consumption, they are not commodities. Again, though food 
grains turned in by the peasant to the landlord as rent are not 
for the peasant's own consumption, they are not paid for by the 
landlord and cannot, therefore, be regarded as commodities. 

Labor products can become commodities only if they are 
transferred to other people through exchange. Therefore, in 
addition to use value, commodities must also be exchangeable 
for other products. This characteristic of commodities is 
called exchange value. 

Exchange value is first expressed as a numerical proportion 
between one use value and another use value. For example, one 
chang of cloth is exchanged for two tou of rice. The two tou of 
rice is the value in exchange for one chan g of cloth. 

The numerical exchange proportion between two commodities 
varies according to time and place. But at a given time and 
place, this proportion is, on the whole, uniform. What deter¬ 
mines this exchange proportion? Obviously, if various 



Commodities Analysis of Capitalist Society 39 


commodities can, in the course of exchange, establish among 
them numerical proportions, they must have something in com¬ 
mon. This common property cannot be their use values. From 
the viewpoint of their use values, every commodity is different 
in nature. For example, cloth can be made into clothes, and 
rice can fill our stomachs. These are two entirely different 
use values and cannot be compared. The common property 
among the commodities must be found in their exchange value. 
And when the use value of both commodities, whether cloth or 
rice, is ignored, the only characteristic left is that they are 
both labor products. Labor has been expended for their produc¬ 
tion. This embodied labor constitutes value. Values are com¬ 
parable, and therefore commodities can be compared in quan¬ 
tity . The fact that one chang of cloth can be exchanged for two 
tou of rice implies that their production requires an equal quan¬ 
tity of labor. Consequently, they are equal in value. Exchange 
value is therefore determined by value. Exchange value is an 
expression of value. Value itself is the basis of exchange value. 

Use value and value are the two characteristics of commodi¬ 
ties. They constitute the two factors of commodities. Use value 
is the material support for value. If one commodity has no use 
value, no matter how much labor has been expended on it, no 
value can be formed. And it cannot be a commodity in exchange 
for other labor products. At the same time, only use value cre¬ 
ated by labor can become the use value of commodities. Even 
if something is absolutely essential for our survival, such as 
air and sunshine, it cannot become a commodity unless labor 
has been expended on it. 

The Duality of Commodities Is Determined by th e 
Duality of Labor Used in C ommodity Pr oduct ion 

Where does the duality of commodities come from ? When 
we go to the source, we discover that labor used for commodity 
production has a dual nature: it consists of concrete labor on 
the one hand and abstract labor on the other. 

To produce various use values, people have to engage in 




40 Fundamentals of Political Economy 


various purposeful production activities. For example, carpen¬ 
ters make tables, and peasants raise crops. They all have their 
own tools, their objects, and their methods. The labor of a 
peasant consists of using various farm tools to plow, rake, 
plant, and harvest, finally producing food crops. This labor ex¬ 
pended in different concrete forms is called concrete labor. 
Concrete labor creates use value. There are many different 
use values for commodities. There are also many different 
forms of concrete labor in commodity production. Concrete la¬ 
bor in various trades and occupations is different, a manifesta¬ 
tion of a complex division of labor. 

Various concrete labor is different in nature and cannot be 
compared. But in the market, various labor products can be 
compared. This shows that labor expended on commodity pro¬ 
duction not only has an aspect of difference, but also an aspect 
of similarity. 

What is this similarity ? It lies in the fact that although labor 
is different in its concrete forms for the production of various 
commodities, it is basically an expenditure of physical and 
mental human labor. This homogeneous labor abstracted from 
its concrete characteristics is called abstract labor. The value 
of commodities is created by abstract labor. Earlier, we said 
labor embodied in commodities constitutes value. Now, after 
analyzing the duality of labor, we can be more specific about 
the meaning of value. Value is the abstract labor embodied in 
commodities. 

Concrete labor and abstract labor are not two different types 
of labor. They are merely two aspects of the same labor. Peo¬ 
ple must engage in various forms of concrete labor in the produc¬ 
tion of various use values for the satisfaction of various needs. 
Concrete labor expresses the relation between man and Nature. 
On the other hand, abstract labor provides a unified measure 
to compare the labor expended on the production of various 
commodities. Therefore, abstract labor expresses the social 
relation in which labor is exchanged among people under the 
condition of commodity production. 



Commodities Analysis of Capitalist Society 41 


Th e Value of Co m m odifies Is D etermined 
by t he Soci ally Necessary Labo r 

The value of commodities is created by labor. Its level is 
determined by the labor expended on the production of commod¬ 
ities. And the volume of labor is measured by labor time. The 
longer the labor time needed for the production of a commodity, 
the larger the volume of labor and the higher the value. 

Does this mean that the lazier and more unskilled a man is, 
the more valuable the commodity he produces would be? Defi¬ 
nitely not. 

The production of a given commodity requires different labor 
time from different commodity producers for obvious reasons. 
Some are more skilled than others. And some use better tools 
and equipment than others. The time required by those who are 
more skilled and use better tools and equipment is naturally 
shorter than the time required by those less skilled and using 
crude tools and equipment. Then, which labor time should be 
used to determine the value of commodities ? 

The labor time expended by various commodity producers on 
commodity production is called individual labor time. For ex¬ 
ample, some carpenters spend thirty hours to make a table, 
some twenty-five hours, and others twenty hours. These are 
all individual labor times. The value of commodities is not de¬ 
termined by the individual labor time, but by the socially neces¬ 
sary labor. "Socially necessary labor is such labor time as is 
required for producing a use value under existing normal condi¬ 
tions of production and with the average amount of skill and in¬ 
tensity prevalent at the time." (2) If under normal production 
conditions and with the average amount of skill and intensity 
the required time to make a table is twenty-five hours, then 
twenty-five hours are the socially necessary labor for making 
tables. Twenty-five hours' labor is the socially necessary la¬ 
bor determining the value of a table. 

When we talk about labor determining value, we must distin¬ 
guish between not only individual labor and socially necessary 
labor, but also between simple labor and complex labor. Simple 




42 Fundamentals of Political Economy 


labor is labor that can be performed by a normal, healthy per¬ 
son without going through special training. Complex labor is 
labor performed by a skilled worker who has undergone certain 
special training. Therefore, in a given period of time, the value 
created by simple labor is less than that created by complex 
labor. Complex labor is multiple simple labor. The conversion 
between complex and simple labor is spontaneously carried out 
in the exchange process. 

The Contradiction between Private La bor 
and Socia l Labor Is the Basic Contradiction 
of Co m modity Pro duction 

We have analyzed above the duality of commodities, the dual¬ 
ity of labor in commodity production, and the value of commod¬ 
ities. With this basic understanding, we can further analyze the 
contradictions of commodity production. 

Commodities are used as exchange for labor products. Com¬ 
modity producers produce commodities not for their own needs, 
but for sale in exchange for the commodities they need. For 
example, the blacksmith does not make hoes because he needs 
them. What he is concerned about is selling the hoes to realize 
their value for the exchange of the rice and cloth he needs. 
Whether his commodities can be sold or not is of vital concern 
to the commodity producer. 

Commodities are a unifier between the opposites of use value 
and value. Concrete labor and abstract labor in commodity pro 
duction are also opposites in unity. They are unified in a com¬ 
modity, but they are also opposites. If the commodity can be 
sold, their internal contradictions are resolved. When a hoe 
reaches the hands of a peasant who needs it, concrete labor is 
converted into abstract labor, and the blacksmith obtains the 
value of his hoe. The use value and the value of the hoe are 
also unified. But if the commodity cannot be sold, the contra¬ 
diction between use value and value and the contradiction be¬ 
tween concrete labor and abstract labor are immediately re¬ 
vealed. Although the hoe obviously possesses use value, if it 






Commodities Analysis of Capitalist Society 43 


cannot be sold, its value cannot be realized, and the hoe is no 
better than a heap of scrap. In this case, the concrete labor of 
the blacksmith, which also obviously represents the expenditure 
of physical and mental labor, cannot be converted into abstract 
labor. In other words, his labor is not recognized by society 
and is as good as wasted. Under these conditions, the black¬ 
smith has no means to purchase pig iron and charcoal with 
which to engage in more production. He certainly has no means 
to buy fuel, rice, oil, and salt to support himself. The contra¬ 
dictions between use value and value and between concrete and 
abstract labor bear directly upon the production and livelihood 
of the commodity producer. 

How do these contradictions in commodity production arise? 
Where are their origins ? There is one basic contradiction in 
commodity production under private ownership. This is the 
contradiction between private and social labor. Since commod¬ 
ities are labor products used for exchange and since the use 
value created by the producer is not for the satisfaction of his 
own needs but to satisfy social needs, the labor of the commod¬ 
ity producer is social in nature. It is a part of total social la¬ 
bor. But under the condition of private ownership, what and 
how much to produce and the size of his income are the private 
affairs of the producer. Therefore, the labor of the commodity 
producer also possesses the nature of private labor. This con¬ 
tradiction between private and social labor is the source of all 
contradictions of commodity production under private owner¬ 
ship. When the commodities produced by the private producer 
are sold in the market, it shows that his private labor is rec¬ 
ognized by society and constitutes a part of the social labor. If 
the commodities cannot be sold, the private labor of the com¬ 
modity producer is not recognized by society and cannot be con¬ 
verted into social labor. The concrete labor of the commodity 
producer cannot be converted into abstract labor. The value of 
commodities cannot, therefore, be realized. 



44 Fundamentals of Political Economy 


Marx's Labor Theory of Value Is the 
Basis of the Theory of Surplus Value 


Through the analysis of the duality of labor, Marx firmly ere 
ated the labor theory of value. This theory scientifically dem¬ 
onstrates that concrete labor creates the use value of commod¬ 
ities, while abstract labor creates the value of commodities 
and labor is the sole source of value. Marx's labor theory of 
value is the basis of Marx's theory of surplus value and is an 
important constituent part of Marxist political economy. 

Before the proletariat received the guidance of Marxist the¬ 
ory, they did not realize the source of their sufferings and coul< 
not identify the objects of their struggle. Some mistakenly 
thought that their sufferings were caused by machines and once 
resorted to destroying machines as a method of struggle. Marx 
summarized the long experience of the proletarian struggle and 
created the theory of surplus value to expose the secret of cap¬ 
italist exploitation. This made the proletariat realize their his¬ 
torical mission and the fact that only through violent revolution 
and the replacement of capitalism by socialism could they be 
liberated. Marx's theory of surplus value is based on the labor 
theory of value. Without the labor theory of value, the theory 
of surplus value could not have been established. 

Because Marx's labor theory of value provided theoretical 
guidance to proletarian revolutionary struggles, bourgeois 
economists tried their best to establish all sorts of anti- 
scientific theories of value in a vain attempt to separate the 
relations between value and labor, to oppose Marx's labor the¬ 
ory of value, and to conceal capitalist exploitation. 

Among the vulgar economists, a production-costs theory of 
value was once much in vogue. This theory says that the value 
of a commodity is determined by the costs of production (the 
value of the means of production and labor wages) expended on 
its production. If the value of a commodity is in fact determined 
by the costs of production, then the capitalist would only get 
back the costs of production expended when the commodity is 
sold. How can he ever get rich this way? Where is the 



Commodities Analysis of Capitalist Society 45 


exploitation of the worker? Therefore, those vulgar econo¬ 
mists who proposed that value was determined by the cost of 
production necessarily explained profit as a form of higher 
wage, a reward for abstinence, an award for risk. This fully 
exposed their ugly role as apologists for the bourgeoisie. 

Among the bourgeois vulgar economists, another utility the¬ 
ory of value was also once in vogue. According to this theory, 
the value of a commodity is determined by the amount of utility 
it possesses. What then is "utility"? This is, in fact, the use 
value of a commodity. We said earlier that various commodi¬ 
ties had different use values which were not comparable. It is 
simply not logical to say that the value of a commodity is deter¬ 
mined by its use value. The utility theorists of value could not 
intelligently explain why such things as air and sunshine, which 
are essential for human survival, did not possess any value 
and could not be sold as commodities. 

Another popular theory among the bourgeois vulgar econo¬ 
mists was a supply-demand theory of value. This theory denied 
that there was any objective, intrinsic value in a commodity and 
thought that the value of commodities was determined by the 
supply and demand conditions in the market. When the supply 
of a certain commodity exceeded its demand, its exchange value 
for other commodities was lower, and its value was lower. But 
when the demand for a commodity exceeded its supply, its ex¬ 
change value for other commodities was higher, and its value 
was higher. This theory was obviously fallacious. The supply- 
demand theorists of value simply cannot explain what deter¬ 
mines the value of a commodity when supply is equal to de¬ 
mand; neither can they explain why, in the changing relations 
between supply and demand for various commodities, some 
commodities are consistently more expensive than others. 

Although the bourgeois economists tried their best to negate 
the labor theory of value, truth can never be negated. Marxist 
labor theory of value has been proven to be the only correct 
theory in its struggle against various pseudoscientific theories 
of the bourgeoisie. 



46 Fundamentals of Political Economy 


Money Is a Natural Produc t of the Dev el opment 
of Commodity Exchange 


Money Is a Special Com mo dity Serving 
as a Universal Equivalent 


Money is associated with commodities because in daily life 
the value of commodities is expressed in terms of money. And 
commodities are bought with money. However, the value of 
commodities was not expressed in terms of money from the 
start. Money is a product of the development of commodity 
production and exchange. 

Commodity exchange started out as direct barter among com 
modities. In the beginning, the nomad tribes and agricultural 
tribes exchanged their surplus products. For example, sheep 
were exchanged for rice. At that time, the exchange of com¬ 
modities was on an occasional basis and occurred mainly 
among clan communes. In the course of exchange, the value 
of a commodity was accidentally expressed in terms of another 
commodity. For example, two sheep equal one bag of rice. The 
value of a sheep could not be evaluated in terms of itself. But 
when sheep were exchanged for rice, the value of a sheep was 
expressed in terms of rice. In the above equation, commodities 
such as rice assumed the special role of an "equivalent.'’ They 
acted like a mirror and in them the value of another commodity 
could be reflected. 

With the development of productive forces and social division 
of labor, commodity exchange daily developed. Both the volume 
and the variety of commodities being exchanged increased. In 
the course of exchange, one commodity could be traded for 
many other commodities. Its value could be expressed in many 
other commodities. At the same time, with the development of 
commodity exchange, the disadvantages of direct barter among 
commodities were increasingly evident. Direct barters could 
be concluded only when both sides happened to need what the 
other side had to offer. For example, suppose that the owner 
of sheep wanted to exchange them for food grains, but the ownei 


Commodities Analysis of Capitalist Society 47 


of food grains needed a hoe instead of sheep and the owner of 
hoes wanted cloth instead of sheep or food grains. If the owner 
of cloth happened to want sheep, then, the seller of sheep could 
obtain food grains by first exchanging sheep for cloth, then 
cloth for hoes, and finally hoes for food grains. The expected 
purpose of exchange was realized only after much trouble. If 
the owner of cloth did not need sheep, then no matter how much 
trouble he went through, he still could not get what he wanted. 
Therefore, when commodity production increasingly developed, 
direct barters proved to be extremely difficult. 

In the course of commodity exchange, people gradually real¬ 
ized that if they first exchanged what they had for some com¬ 
modity (like sheep) which was generally needed and used it to 
exchange for what they needed, then the purpose of exchange 
could be realized in only two transactions. Therefore, in the 
long developmental process of commodity exchange, commodi¬ 
ties such as sheep would be separated from other commodities 
and perform a role not possible for other commodities. Then, 
the values of all commodities were all expressed in terms of 
sheep. And sheep assumed the role of a "universal equivalent" 
in commodity exchange. 

In the long process of the development of commodity ex¬ 
change, nations used different mediums of exchange, including 
sheep, shells, cloth, and metals. Finally, they decided to use 
precious metals such as gold and silver as money. Because 
the precious metals are small in quantity but great in value, 
easy to carry, readily divisible, and not perishable, they are 
suitable for a medium of exchange. Hence, gold and silver are 
generally accepted as money. Note, however, that money is not 
an innate property of gold and silver; it is acquired. Gold and 
silver became money under certain historical production rela¬ 
tions. 

From the origin of money, one can understand the nature of 
money. Money is a special commodity separated from other 
commodities and serving as a medium of exchange. 



48 Fundamentals of Political Economy 


The Five Functions of Money 
Evolved Step by Step 

The property of money is manifested in its functions. Money 
possesses five functions which are evolved in the process of 
commodity exchange. These functions are to serve as (1) a unit 
of value, (2) a medium of exchange, (3) a standard of payments, 
(4) a store of value, and (5) a universal currency. Of these, the 
basic functions are as a unit of value and as a medium of ex¬ 
change. But they have all evolved with the emergence of money 

The first function of money is as a unit of value. Just as a 
ruler is used to measure the length of things, money is used to 
measure the value of commodities. Money functioning as a 
measure of value can be conceptual money. This is to say, 
when people use money to evaluate the value of commodities, 
they need not have money in their hands. For example, a table 
is worth ten yuan. But there is no need to put ten yuan on the 
table. When the values of commodities are expressed in terms 
of money, they are the prices of the commodities. Prices are 
the expression of values in money terms. The prices of com¬ 
modities are determined by two factors. One is the value of 
the commodities themselves, and the other is the value of 
money (gold, silver). The prices of commodities are directly 
proportional to the value of the commodities themselves and 
inversely proportional to the value of money. For example, a 
buffalo is worth five hundred hours of social labor and one 
ounce of gold is worth five hundred hours of social labor. Then, 
the price of a buffalo is one ounce of gold. If the labor produc¬ 
tivity of gold miners is doubled and one ounce of gold is now 
worth only two hundred and fifty hours of social labor, then, 
even though the value of a buffalo has not changed a bit, the 
price of a buffalo has doubled. 

The second function of money is as a medium of exchange, 
namely, it serves as a medium of commodity circulation. Com¬ 
modity circulation is commodity exchange by means of money. 
Before the appearance of money, commodities were bartered 
directly. In terms of a formula, it is expressed as commodity 



Commodities Analysis of Capitalist Society 49 


equals commodity. After the appearance of money, all commod¬ 
ities were exchanged in terms of money. In terms of a formula, 
it is expressed as commodity equals money equals commodity. 
This role of money as a medium in commodity circulation is 
the function of money as a medium of exchange. 

The money used as a medium of exchange was originally gold 
and silver pieces of different sizes and weights. This was later 
replaced by coins. Coins were merely minted metal pieces of 
uniform shape, purity, and weight certified by the state. The 
coins of various countries were all different. In China's late 
Shang dynasty, coins began to be minted with copper. The oldest 
coins were made of copper and shaped like farm tools. They 
were known as p u ch'ie n. In the Chou dynasty, in addition to 
pu ch'ien , there were t ao ch'ie n and yuan c h'ien. Yin yuan [sil- 
ver dollars] were first minted in the Kuang-hsii period of the 
Ch’ing dynasty. Each yin yuan consisted of 0.72 ounces of silver. 

In the course of circulation, coins were worn out and part of 
their value was lost. But even then coins were still accepted at 
their full value. This was because the function of money as a 
medium of exchange was performed in one instant. People ex¬ 
changed their commodities for money merely in order to use it 
to buy the commodities they needed. The primary concern of 
the commodity owners was whether the money could be used as 
a medium of exchange and not whether the money had its full 
worth. For this reason, not only could worn metal money be 
used as a medium of exchange, but even pure value symbols in 
the form of paper notes could take its place. 

Since paper money in place of metal money serves as a me¬ 
dium of exchange in commodity circulation, the amount of paper 
money issued is limited to the amount of metal money needed 
for commodity circulation. Marx pointed out: "The amount of 
paper money issued, which is a token or symbol of real money, 
always equals the value of the gold (or silver) needed for com¬ 
modity circulation." (3) If the paper money issued equals the 
amount of metal money needed for commodity circulation, then 
the paper money shall possess the same purchasing power as 
the metal money. If the amount of paper money issued exceeds 



50 Fundamentals of Political Economy 


the amount of metal money needed for commodity circulation, 
then the value of the total paper money still equals the metal 
money needed for commodity circulation, but the unit value of 
the paper money shall fall in terms of the metal money. Hence, 
the value of the paper money depreciates, and commodity prices 
appreciate. For example, if, in a given period, the amount of 
metal money needed for circulation were 100 million yuan but 
the amount of paper money were 200 million yuan, then the 
value of paper money would be halved. The purchasing power 
of 1 yuan of paper money would be equivalent only to 0.5 yuan 
of metal money. 

This depreciation of paper money resulting from the issue of 
paper money in excess of the amount of metal money needed for 
circulation is called inflation. In capitalist society, inflation is 
an important means by which the bourgeois state plunders its 
people. The result of inflation is the depreciation of paper 
money and rising prices. On the other hand, the increases in 
the money wages of the workers lag far behind the increases in 
prices, resulting in decreases of their real wages and their 
standard of living. At the same time, the exploitative income 
of the bourgeoisie increases rapidly. In old China, the issue of 
legal tender reached astronomical figures, leading to galloping 
inflation and quantum jumps in prices. Some people once cal¬ 
culated that the purchasing power of 100 yuan of legal tender in 
1937 was two buffaloes. In 1938, it was one buffalo. In 1941, it 
was one pig. In 1947, it was one-third of a box of matches. In 
1948, it could not even buy one-third of a matchstick. 

The third function of money is as a means of hoarding. The 
development of the money relation of commodities increasingly 
made money into a symbol of social wealth. When the natural 
economy played a dominant role, the accumulation of wealth 
assumed the form of food grains, cloth, and silk goods. After 
the money relation of commodities was developed, because 
money could be used to purchase any commodity, the accumula¬ 
tion of wealth increasingly adopted the form of hoarding money 
(gold and silver). This money which was temporarily .retired 
from commodity circulation and hoarded by its owner became 



Commodities Analysis of Capitalist Society 51 


hoarded money. It served the function as a means of hoarding. 

The fourth function of money is as a means of payment. With 
the development of commodity production and exchange, trans¬ 
actions on credit increasingly developed. When a debt was due, 
payment had to be made in money. But at that time, commodity 
exchange had already been completed. Here, money no longer 
served as a medium of exchange, but rather as a means of pay¬ 
ment. As a means of payment, money was first used among 
commodity producers to settle debts. Later, its use went be¬ 
yond the sphere of commodity circulation. This function was 
also instrumental in the payment of rent, interest, and taxes. 

The fifth function of money is as a world currency. With 
commodity exchange proceeding beyond a nation-state, inter¬ 
national trade developed, and a new function of money was cre¬ 
ated. This was the function of a world currency. Only gold and 
silver could serve as world currency. 

In the world market, gold first served as a means of pay¬ 
ment to settle international accounts. This was the major func¬ 
tion of a world currency. Next, in the world market, gold was 
also used as a means of payment to buy various commodities. 
Finally, gold was transferred from one country to another as 
a symbol of social wealth. For example, the payment of war 
indemnities, capital export, and other transfers of gold and 
silver from one country to another served this function. 

The above five functions of money are organically related 
and are different expressions of the nature of money. They are 
the expressions of the different roles assumed by a universal 
equivalent in the development of commodity circulation. 

The L a w of Value Is the Economic Law 
of Commodity Production 


The Objective Requirement of the Law of 
Valu e Is E quivale nce in E xchange 

The law of value is the economic law of commodity produc¬ 
tion and exchange. The basic content of this law is this: The value 



52 Fundamentals of Political Economy 


of a commodity is determined by the socially necessary labor. 
Commodities must be exchanged according to their values. 
That is, there must be equivalence in exchange. Wherever and 
whenever the conditions of a commodity economy exist, the 
law of value has a role to play. Marx said, "In the anarchic and 
constantly changing trade relations of private labor products, 
the socially necessary labor time for their production forcibly 
clears its own path as a regulatory law of nature, just as the 
law of gravity forcibly clears its own path when a house falls 
on a person’s head.” (4) In other words, in commodity ex¬ 
change, although because of the influence of the supply-demand 
relation the proportions in which commodities are exchanged } 
may change continuously so that the socially necessary labor 
(the value) embodied in two commodities being exchanged may 
not be exactly equal, in the long run, commodity exchange nec-j 
essarily involves equivalence in exchange. The values being 
exchanged must be identical. 

Why is the objective tendency of commodity exchange toward 
equivalence in exchange ? This is because commodity produced 
are all concerned about how much of others' commodities theiij 
own commodities can be exchanged for. Due to the influence of| 
the supply-demand relations, the proportions in which commodi 
ities are exchanged constantly change. People increase producj 
tion of commodities which are more profitable and decrease i 
production of commodities that are less profitable. As a re- j 
suit, the supply of the former commodities exceeds the demanq 
for them, and their exchange values decrease. The supply of 1 
the latter commodities falls below the demand for them, and ! 
their exchange values increase. This constant change in the J 
proportions at which commodities are exchanged demonstrates! 
that equivalence in exchange is an objective law which does not] 
change according to people's will. 

With the appearance of money, all commodity exchanges de-’ 
pend on money as a medium. Values are expressed as prices. 
The law of value requires equivalence in exchange. In other 
words, it requires the equivalence between prices and values. 
Needless to say, the equivalence between prices and values 



Commodities Analysis of Capitalist Society 53 


must be understood as a long-term tendency. In fact, in a com¬ 
modity economy based on private ownership in which production 
is uncoordinated, there are constant dislocations in the supply 
of and demand for commodities in the market, leading to con¬ 
stant fluctuations of prices. Although changes in the supply- 
demand relations lead to fluctuations in prices, the fluctuations 
are always centered around the equilibrium values. Therefore, 
nonequivalence between prices and values due to the influence 
of the supply-demand relations does not imply the negation of 
the law of value, but rather a necessary form through which 
the law of value operates. 

The Th ree Func tions of the Law of Value Whic h 
Arise in the Course of Market C ompet ition 

The law of value performs three functions in commodity pro¬ 
duction based on private ownership. These functions are real¬ 
ized through the spontaneous force of market competition. 

First, the law of value is a regulator of production. It spon¬ 
taneously regulates the distribution of social labor and the 
means of production among various production sectors. Com¬ 
modity production based on private ownership is conducted un¬ 
der the condition of competition and anarchy. Nobody has di¬ 
rect information on what or how much society needs. But some 
order, allocations, and arrangements are necessary for the 
continuation of social production. These allocations and ar¬ 
rangements are regulated by the law of value and realized 
through the spontaneous influence of market price fluctuations. 
If the supply of a certain commodity does not meet the demand 
for it, its price will rise above its value, and the production of 
this commodity becomes especially profitable. The production 
of this commodity will thereby be increased. If the reverse is 
true, its price will fall below its value, and its production will 
be decreased. It is in this way that the law of value directs the 
activities of commodity producers and regulates the distribu¬ 
tion of labor and the means of production among various pro¬ 
duction sectors. 



54 Fundamentals of Political Economy 


Although the regulation of social production by the law of 
value imposes certain order in the commodity economy based 
on private ownership, this order is achieved under the conditio] 
of anarchy. It is constantly destroyed by blind competition, and 
a new order is again spontaneously formed. The establishment 
of this kind of order is achieved through an immense waste of 
social labor. Just as Marx said, "This orderless motion is its 
order." (5) 

Second, the law of value stimulates the improvement of pro¬ 
duction techniques and labor productivity. Labor productivity 
is measured by the amount of products produced in one unit of 
time. Expressed as a formula: labor productivity equals amoun 
of products divided by labor time. The level of labor productiv: 
ity is determined by many factors. The most important ones 
are the skill of labor, the state of technology and its applica¬ 
tion to production, and the extent of division of labor and co¬ 
operation. According to the objective requirement of the law 
of value, commodities are sold according to the values deter¬ 
mined by the socially necessary labor. Therefore, whoever is 
more skilled, more efficient, and uses less than the socially 
necessary labor time will get more profit. This stimulates the 
commodity producer to pay attention to improving his produc¬ 
tion techniques and labor productivity. But under private ownei 
ship, the improvement of production techniques by the commodi 
ity producer is for the sake of higher profits. Those who pos¬ 
sess new techniques will naturally keep them secret. Under * 
these conditions, the development of social productive forces 
is hindered. 

Third, the law of value promotes polarization among com¬ 
modity producers. This is because the production conditions 
of various commodity producers are all different. The individ¬ 
ual labor time used to produce a certain commodity varies 
widely. But the law of value requires that commodities are 
sold according to the value determined by the socially neces¬ 
sary labor. Thus, those commodity producers with better pro¬ 
duction facilities and with individual labor time less than the 
socially necessary labor time will make a higher profit and 



Commodities Analysis of Capitalist Society 55 


develop faster. On the other hand, those commodity producers 
with poorer production facilities and with individual labor time 
higher than the socially necessary labor time will not survive 
the competition. Thus, the polarization among commodity pro¬ 
ducers is inevitable. 

Expose the Myste ry of Com mo dity F etishism 


Fetishism originally referred to religions in which people 
worshiped things believed to possess certain mystical power. 
When the level of social productive forces was low and the con¬ 
trol people exercised over Nature was weak, they made natural 
forces mysterious. They thought natural forces like thunder, 
lightning, water, and fire were controlled by certain gods and 
therefore worshiped them. This also happened in the commod¬ 
ity economy under private ownership. Although commodities 
are made by people's hands, they were worshiped as gods and 
believed to hold people's destiny. Marx called this phenomenon 
commodity fetishism. 

How did commodity fetishism come about ? 

Under private ownership commodity production, the relations 
among men were manifested in commodity relations. Commod¬ 
ities were treated as if they were something above men, their 
master. The destiny of the commodity producer was entirely 
associated with the destiny of commodities. His destiny was 
entirely determined by whether and how well his commodities 
could be sold. If his commodities could be sold at profitable 
prices, the commodity producer would be well off. But if they 
could not be sold or could only be sold at very low prices, he 
would be poor. The commodity producer had no way of knowing 
beforehand whether there was a demand for his commodities 
or whether the commodities could be sold at good prices. The 
prices of commodities were not determined by the individual 
producers, but rather by the spontaneous forces of the opera¬ 
tion of the law of value in the market. It was this condition that 
led the commodity producer to feel that his destiny was beyond 
his own control and was decided by the fate of his commodities 
in the market. 



56 Fundamentals of Political Economy 


After the appearance of money as a universal equivalent 
which could be freely exchanged for all commodities, there 
arose an illusion that money itself had a special magical power 
that could affect people's destiny. Therefore, commodity fetish¬ 
ism inevitably developed into money fetishism. 

Marx was the first one to reveal the mystery of commodity 
fetishism. Marx's theory on the relations between commodities 
and money permitted the revelation of the relations among peo¬ 
ple, while bourgeois economists could see only the relations 
among things and the social relations among them concealed 
by things. Marx's theory irrefutably demonstrated that the re¬ 
lation between commodities and money will not hold eternally, 
but will be a passing historical phenomenon. Therefore, the 
capitalist economic system with commodities as its cells is 
not eternal. Things that were created under certain historical 
conditions will disappear when the historical conditions change. 
This is an objective law that cannot be changed according to 
people's will. 


Major Study References 


Marx, Capital, Vol. 1, Chapters 1, 3. 

Engels, Anti-Duhring , Part 2, Chapter 5. 

Lenin, Karl Marx, ("Marx's Economic Theories"). 


Review Problems 


1. Why do we say that commodity relations embody all the 
seeds of capitalist contradictions ? 

2. What are the major content and meanings of Marx's labor 
theory of value ? 

3. What are the roles played by the law of value in a com¬ 
modity economy based on private ownership? 




Commodities Analysis of Capitalist Society 57 


Notes 

1) "The Rectification of the Party's Style of Work," Selected 
Works of Mao Tse-tun g, Vol. 3, Jen-min ch'u-pan-she, 1968, 

2) Marx, Capital, Vol. 1, Complete Works of Marx and 
Engels, Vol. 23, p. 52. 

3) Tbid., p. 147. 

4) Ibid., p. 92. 

5) Marx, Wage Labor and Capital , Selected Works of 
Marx and Engels, Vol. 1, Jen-min ch'u-pan-she, 1972, p. 360. 






4 


How the Capitalists Exploit 
and Oppress the Workers 


Capital and Surplus Value* 


Capitalist production is commodity production aimed at reap 
ing surplus value. To understand the nature of capitalist pro¬ 
duction, we must study Marx's theory of capital and surplus 
value. Only by equipping ourselves with this theory can we 
understand the exploitative relation of capitalism, realize the 
inevitable extinction of capitalism and the inevitable triumph 
of socialism, appreciate the historical mission of the proletar¬ 
iat, and become conscious revolutionary soldiers of the prole¬ 
tariat. 


The Secret of the Exploitation of the 
Workers by the Capitalists 

T he Co n version of Labor Power into Commodities Is 
the Precondition for the Production Surplus Valu e 

Every old worker from the old society has a family history 
full of hardship and suffering. In the old society, the workers 
"ate like pigs and dogs and toiled like buffaloes and horses." 
They "worked until they were old, and their lot was worse than 
a blade of grass." They were oppressed politically, and their 
livelihood was uncertain. But the capitalists never worked. 
They bossed the workers around and led extravagant and 

*Tzu-pen-chia shih tsen-yang po-hsiao ho ya-p’o kung-jen 
ti — tzu-pen ho sheng-yii chia-chih. 


58 



Capitalist Exploitation and Oppression of the Workers 59 


degenerate lives. Their wealth increased all the time. Why? 
Marx's theory of capital and surplus value revealed this secret 
and scientifically answered these questions. 

How did Marx's theory of capital and surplus value reveal 
the secret of the capitalists' exploitation of the workers? We 
must start from that special commodity, labor power. 

Labor power means human work, the sum total of a person's 
physical and mental effort. In any society, labor power is the 
chief factor of production. But only in the capitalist society is 
labor power a commodity. There are two conditions under 
which labor power becomes a commodity. First, the laborer 
is a "free man." He is free to sell his labor power as a com¬ 
modity. Second, the laborer has nothing aside from his labor. 

He has no means of production or means of livelihood and must 
sell his labor power to live. These two conditions occurred 
when the feudal society collapsed and in the course of polariza¬ 
tion between the small commodity producers and primitive ac¬ 
cumulation. The employment of workers by the capitalist con¬ 
sists of buying their labor power and converting them into hired 
slaves. 

Once labor power becomes a commodity, it possesses value 
and use value, like other commodities. The value of labor power, 
like the value of all commodities, is determined by the amount 
of socially necessary labor required for its production and re¬ 
production. The capitalist must maintain the labor capacity of 
the worker if he wants him to work for him. To maintain the 
worker's labor capacity, it is necessary to feed, clothe, and 
shelter him and provide him with means of livelihood. There¬ 
fore, the value of labor power must include, first of all, the 
value of the means of livelihood needed to maintain his suste¬ 
nance. At the same time, workers grow old and die. In order 
to maintain the capitalist exploitative system, the capitalist 
needs new workers as replacements. Therefore, the value of 
labor power must also include the value of means of livelihood 
needed by the worker to support his children and other depen¬ 
dents. To more fully exploit the worker, the capitalist gener¬ 
ally requires him to master certain skills through general 



60 Fundamentals of Political Economy 


education and training. Thus, the value of labor power must 
also include the cost of education and training. But this amount 
to very little. In general, it can be said that the socially neces 
sary labor needed for the production of labor power is the so¬ 
cially necessary labor needed for the production of the above- 
mentioned means of livelihood. In other words, the value of la¬ 
bor power is the value of the means of livelihood needed to kee 
the worker alive and his offspring growing. 

As for the use value of labor power, it is different from the 
use value of other commodities. Labor power is a special com 
modity. Its use value possesses a special characteristic. Wher 
the use value of other commodities, like food grains and cloth¬ 
ing, is consumed, no new use value is created. But the use of 
this special commodity labor power, that is, the worker's 
work, can create value and, moreover, can create value which 
is higher than the value of the labor power itself. "When the 
capitalist purchases labor power, it is this augmented value in 
which he is interested." (1) This difference is called surplus 
value. 

The Surplus Value Expropriated by the Capitalist 
Comes from th e Exploita ti on of Workers 

How then does surplus value arise? Let us examine con¬ 
cretely the production process of surplus value. After the pur¬ 
chase of labor power by the capitalist, he forces the worker to 
work in his factories to produce commodities. There are two 
aspects of capitalist production process. It is a labor process. 
It is also a value-augmenting process. 

A labor process is the purposeful process by which people 
use certain labor to transform the labor object for human need 
The characteristic of the capitalist labor process is that the 
capitalist possesses means of production. The worker toils un* 
der the capitalist's orders while his labor products belong to 
the capitalist. The result of the capitalist labor process is the 
production of a certain use value capable of satisfying certain 
social needs. But that is not the purpose of capitalist production. 





Capitalist Exploitation and Oppression of the Workers 61 


The capitalist allows the worker to produce certain use value 
only because use value is the material carrier of value. If he 
does not provide some use value, there will be no demand for 
his commodity, and the value (including surplus value) produced 
will not be realized. 

The capitalist production process is also a value-augmenting 
process. When the workers produce use value, they are also 
using their active labor to create new value. The new value 
which the workers create is higher than the value of the labor 
power itself. This is called value-augmenting. This value - 
augmenting is the ultimate goal of the capitalist. The value - 
augmenting process is the major theme of the capitalist pro¬ 
duction process. 

Take the example of cotton yarn production. The capitalist 
first purchases enough means of production for a worker's 
twelve-hour workday. Suppose the value of these means of pro¬ 
duction is equal to forty-eight hours of labor, totaling twenty - 
four yuan. He also purchases a day's labor power from a 
worker. Suppose the value of a day's labor power is equal to 
six hours of labor, totaling three yuan. Then the worker is 
made to spin yarn. Since what the capitalist has purchased is 
a day’s labor power, he will not ask the worker to work for 
only six hours. Suppose the worker toils twelve hours a day. 
Then, the value of the cotton yarn produced is equal to sixty 
hours of labor, totaling thirty yuan, of which twenty-four yuan 
is transferred from the means of production and six yuan is 
the new value created by the worker in twelve hours' labor. In 
this labor process, the capitalist gets only twenty-seven yuan, 
of which twenty-four yuan are used for purchasing means of 
production and three yuan for paying wages. The remainder is 
three yuan. This is the augmented value created by the worker 
and expropriated by the capitalist. The process of value aug¬ 
menting is the production process of surplus value. 

What takes place above still follows the principle of equiva¬ 
lence in exchange. But value is augmented, and surplus value 
produced. The key of this process is that the capitalist obtains 
the right to use the labor power he has purchased. ’The use 



62 Fundamentals of Political Economy 


value of the labor power, that is, the labor itself, belongs just 
as little to the vendor as the use value of oil which has been 
sold belongs to the oil dealer. The owner of money has paid 
the daily value of labor power. Consequently, its use during 
the day, the whole day's labor, belongs to him. The daily sus¬ 
tenance of labor power only costs half a working day, although 
such labor power can be in action the entire day. Consequently 
the value which its employment creates in a single day is dou¬ 
ble its own daily value." (2) That the capitalist can build large 
factories and accumulate ever more wealth is due to the fact 
that the value created by labor is far larger than the value of 
labor power and the difference is expropriated by the capitalis 
Through the analysis of the production process of surplus 
value, we can see clearly that surplus value is created by worl 
ers in the production sphere. But to conceal the exploitation ol 
workers, the bourgeoisie and their agents insist that the new 
value obtained by the capitalist comes from the circulation 
sphere. We must thoroughly expose such lies. Surplus value 
cannot be explained by saying that the buyer buys commodities 
below their values or that the seller sells commodities above 
their values, since the gain or loss obtained through the trans¬ 
action will be offset by the change in roles between buyers and 
sellers. Neither can surplus value be explained by deceit, be¬ 
cause even though deception may increase the welfare of one 
party at the expense of another, it cannot increase the total 
wealth of both parties. "The whole capitalist class of a countrj 
cannot become richer by deceiving themselves." (3) If there ifl 
any relation between surplus value and the circulation sphere, 
it is the fact that the capitalist cannot divorce himself from tin 
circulation sphere in buying labor and selling commodities. In 
the circulation sphere, the capitalist buys labor power which 
provides the condition for producing surplus value. And the 
capitalist realizes this surplus value through selling his com¬ 
modities. In any case, surplus value can only be created in the 
production sphere and not in the circulation sphere. Surplus 
value can only be the product of the capitalist's exploitation of 
the worker in the production process. 



Capitalist Exploitation and Oppression of the Workers 63 


Once we understand the secret of capitalist exploitation, we 
can appreciate the nature of capital and the basic economic law 
under capitalism. Capital is a value that can bring about sur¬ 
plus value, or it can be said to be a value with self-value- 
augmenting power. Capital is not a simple thing. It expresses 
the capitalist mode of production, namely the class relations 
whereby the capitalist exploits the workers. 

This relation expressed by capital is a result of historical 
development. Means of production and money existed before 
the emergence of the capitalist mode of production. But only 
under the capitalist mode of production when capital is owned 
by the capitalist and is used as a means to exploit the worker’s 
surplus value does it become capital. Marx pointed out, "The 
Negro is simply a negro. Only under some conditions does he 
become a slave. A spinning machine is a machine for spinning 
cotton. Only under some conditions does it become capital."(4) 
Bourgeois economists insisted that the means of production is 
capital. According to this reasoning, the stone implements and 
wood clubs used by primitive man were capital. The purpose 
of their fallacies was to conceal the class relations among peo¬ 
ple with the relations among things, to conceal the nature of 
capitalist exploitation, to negate the fact that capital is a his¬ 
torical category, and to explain capitalism as eternal and ex¬ 
isting from time immemorial. 

Marx pointed out in his analysis of the capitalist mode of 
production that "to produce surplus value and to make money 
is the absolute law of this mode of production." (5) This law 
of surplus value is also the basic economic law of capitalism. 

It reveals the objective purpose and nature of capitalism. There 
would be no capitalist production without the production of sur¬ 
plus value. All the activities of the capitalist are aimed at 
squeezing the sweat and blood from the worker for profit. The 
capitalist’s greed for money is never satisfied and his thirst 
for surplus value is never quenched. This is the nature of the 
capitalist. "The purpose of capital is not to satisfy needs, but 
to produce profit." (6) "Capital and its increase in value are 
the beginning and the end of production and are the means and 



64 Fundamentals of Political Economy 


the end of production.'* (7) The whole capitalist system is base 
on the cruel exploitation of the worker by the capitalist. Capi¬ 
talism is the evil system in which man exploits man. 

To maintain the capitalist system and conceal the nature of 
capitalist exploitation, the bourgeoisie and their spokesmen 
fabricated all sorts of fallacies to deceive the masses. They 
said that the suffering of the workers was due to their "bad 
luck" and that the wealth of the capitalist was a result of their 
"diligence and thrift." These are all lies. The capitalist never 
works; how can he be "diligent"? He leads an extravagant and 
evil life; how can he be "thrifty"? In the old society, the suffei 
ing of the worker was not because of "bad luck," but because 
most of the products produced were expropriated by the capi¬ 
talist. In short, the poverty of the worker and the wealth of the 
capitalist arose from the same source. It was the capitalist 
exploitative system based on the capitalist's private ownership 

The Cruel Means by Which the Capitalists 
Exploit and Oppress the Workers 


The Rate of S urplus Value R eflects the D egree of 
Exploitation of the Worker by the Capitalist 


The capitalist is capital in disguise. His soul is the soul of 
capital. The capitalist is a bloodsucker. He will not stop if 
there is still something left to be squeezed out of the worker. 
To get more surplus value, the capitalist tries his best to in¬ 
crease the exploitation of the worker. We can gauge the degree 
of the capitalist's exploitation of the worker by the rate of sur¬ 
plus value. 

To understand the rate of surplus value as a gauge of the de¬ 
gree of the capitalist’s exploitation of the worker, we must un¬ 
derstand the different roles played by the means of production 
and labor power in the creation of value and in augmenting 
value and the difference between constant and variable capital. 

Means of production is consumed in the process of productio: 
and loses its original value in use. But its value is not lost. 



Capitalist Exploitation and Oppression of the Workers 65 


It is simply transferred to new products through the worker's 
labor. But this transfer cannot add any new value. Therefore, 
the part of capital which is used to buy means of production is 
called constant capital. In contrast to constant capital, the part 
of capital used by the capitalist to buy labor power is called 
variable capital because the new value created by labor exceeds 
the value the labor power received. Surplus value is the prod¬ 
uct of the augmenting of variable capital. 

Let us use "c" to denote constant capital, "v" for variable 
capital, and "m" for surplus value. Then, the advance payment 
for capital is c 4- v and the total value of products is c + v + 
m. Since the value of c is unchanged in the production process, 
m is merely the result of the augmenting of v. So to indicate 
the degree of exploitation of the worker by the capitalist, we 
can ignore c and contrast only m with v. Then m/vis the rate 
of surplus value. Using the above example of spinning, v is 
three yuan, and m is also three yuan. The rate of surplus value 
reflecting the degree of exploitation by the capitalist is thus 
m/v, that is, 100 percent. 

From the process of value-augmenting, we can see that the 
labor time of a workday can be divided into two parts: one is 
the value (wage) used to reproduce variable capital. That part 
of labor time is needed for the sustenance of the worker and 
is called necessary labor time. The other part is used to pro¬ 
duce surplus value for the capitalist and is called surplus la¬ 
bor. Therefore, the rate of surplus value can also be expressed 
as: 


rate of surplus value = 


s urplus value (m ) surplus labor time 
variable capital (v) ~ necessary labor time. 


To Obtain A b solute Surp l us Value 
through Lengthening Labor Time 


The capitalist always tries to increase the rate of surplus 
value by increasing the exploitation of the worker. In order to 
increase the rate of surplus value, the capitalist generally 



66 Fundamentals of Political Economy 


resorts to lengthening labor time. Under capitalism, the labor 
time of a worker in a day is the sum of necessary labor and 
surplus labor time. Under the condition of constant necessary 
labor time, the longer the labor time, the longer the surplus 
labor time. If, in the beginning, the daily labor time of a worke 
is twelve hours, six hours of which are necessary labor time, 
then six hours are surplus labor time. Now the capitalist ex¬ 
tends the labor time to fifteen hours. With necessary labor 
time constant at six hours, surplus labor time becomes nine 
hours, three hours more than before. Thus, the ratio between 
surplus labor time and necessary labor time changes from six 
to six to nine to six. And the rate of surplus value is increased 
from 100 percent to 150 percent. This surplus value produced 
by the absolute lengthening of the daily labor time is called ab¬ 
solute surplus value. 

In old China, the working time of the worker was incredibly 
long. The daily labor time was 15, 16 or even more than 18 
hours. It was not unusual for a worker "to see stars in the sky 
before he went to bed late at night and to see stars when he had 
to get up early the next morning." Prior to liberation, the work 
ers inSan-t'iao-shih, Tientsin, had to work 357 days a year and 
about 20 hours a day. Reckoning on the basis of 8 hours a day, 
it was equivalent to working 893 workdays. One year’s labor 
was equivalent to nearly 3 years. To lengthen the labor time 
of the workers, the capitalists thought up all kinds of restric¬ 
tions, such as 10 minutes for meals and registration before 
going to toilets. They even resorted to the mean trick of setting 
the clock back! The longer the worker's labor time, the longer 
the surplus labor time and the longer the absolute surplus value 
obtained by the capitalist. Under the cruel exploitation of the 
capitalist, this constant physical exhaustion severely strained 
the worker, often resulting in early death. 

Though the lengthening of labor time by the capitalist to in¬ 
crease exploitation is an easy method, it inevitably leads to 
opposition from the worker. At the same time, the capitalist 
cannot extend the work time to twenty-four hours a day because 
there is a physical limit to labor power expenditure. Thus, the 



Capitalist Exploitation and Oppression of the Workers 67 


capitalist adopts another, more obscure method by shortening 
the necessary labor time and thus lengthening the relative sur¬ 
plus labor time to increase his exploitation of the worker. 

To Ex tract Relative Surplus Value through 
Shorteni ng the Necess ary Labor Time 

How can the necessary labor time be shortened ? We know 
that the necessary labor time is the labor time needed for the 
reproduction of the value of labor power. And the value of labor 
power is determined by the value of necessary means of liveli - 
hood for the sustenance of the worker and his dependents. If 
the capitalist adopts new techniques and new machines to in¬ 
crease general labor productivity and thus reduce the value of 
means of livelihood necessary for the reproduction of labor 
power, then, even if the total daily labor time of the worker is 
constant, the relative surplus labor time can be lengthened be¬ 
cause the necessary labor time can now be shortened because 
the value of labor power is reduced. Suppose the original nec¬ 
essary labor time is six hours and the surplus labor time is 
also six hours. Now, if the general labor productivity has been 
doubled, the value of the means of livelihood necessary for the 
worker and his dependents will be reduced by half, and the la¬ 
bor time necessary for reproducing the labor power value will 
also be shortened from six to three hours. And the surplus la¬ 
bor time will be lengthened from six to nine hours, three hours 
more than before. The ratio of surplus labor time to necessary 
labor time changes from six to six to nine to three. The rate 
of surplus value increases from 100 percent to 300 percent. 

This surplus value created by the shortening of the necessary 
labor time and the relative lengthening of the surplus labor 
time is called relative surplus value. 

It must also be pointed out that the efforts of the individual 
capitalist to adopt new techniques and new machines to force 
the worker to increase his labor productivity cannot reduce the 
value of means of livelihood. Therefore, he cannot immediately 
fulfill his aim of extracting relative surplus value. If this is the 




68 Fundamentals of Political Economy 


case, why does the capitalist adopt new techniques and new ma¬ 
chines ? The direct motive of the capitalist for adopting new 
techniques and new machines is to reduce the individual labor 
time for commodity production below the socially necessary 
labor time, so that when he sells his commodities at values 
determined by the socially necessary labor time he can get 
more surplus value than other capitalists. The surplus value 
resulting from lower individual labor time of commodities than 
the socially necessary labor time is called excess surplus la¬ 
bor. But the capitalist who first adopts new techniques is not 
likely to enjoy this excess surplus value for long because of 
similar actions by other capitalists to share part of the excess 
profit. When the new techniques and new machines have been 
widely adopted and the general labor productivity elevated, the 
value of commodities will come down. The gap between indi¬ 
vidual labor time and socially necessary labor time leading to 
excess surplus value will disappear. Excess surplus value will 
also disappear. However, as a result, general labor productiv¬ 
ity will have been elevated. The values of many commodities 
will come down, and the means of livelihood constituting the 
value of labor will be cheaper. The value of labor power will 
be cheaper, and the necessary labor time will be shortened. 
Consequently, the capitalist can extract more relative surplus 
labor. 

The greedy capitalist not only resorts to elevating labor pro¬ 
ductivity to increase his relative surplus value, he also resorts 
to shortening the necessary labor time by increasing labor in¬ 
tensity to extract more relative surplus value. Marx said: "In 
a sense, the elevation of labor productivity and the increase of 
labor intensity serve the same function. They will increase the 
total production derived from a given period of time. Conse¬ 
quently, they will shorten the part of the workday needed for 
the production of the workers' own means of livelihood or other 
equivalents." (8) The capitalist quickens the operation of ma¬ 
chines, raises the labor quota, and reduces total employment 
but not total workload to increase the labor intensity of the 
worker. The labor of the worker is ever more demanding. 



Capitalist Exploitation and Oppression of the Workers 69 


After one day T s work, he is completely exhausted. Take the ex¬ 
ample of the Shanghai Shen-hsin Yarn Mill. In 1933, 440 work¬ 
ers were employed for every 100,000 spindles. In order to 
compete with the Japanese-operated yarn mills and to get more 
surplus value, the capitalists of this mill forced up labor inten¬ 
sity by reducing the number of workers. In 1934, only 270 work¬ 
ers were employed for 100,000 spindles. In the old society un¬ 
der the oppression of the capitalist, the workers were so over¬ 
worked that many became senile at age forty. 

Depress Wages below the Value of Labor 
to Extract More Surplus Value 


The tricks adopted by the capitalist to exploit the worker are 
numerous. He often depresses and deducts wages. When we 
analyzed absolute surplus value earlier, we assumed that the 
capitalist pays wages according to the value of labor power. 

But the wages of the worker are often below the value of his 
labor power. The capitalist tries his best to depress the work¬ 
er’s wages. Even though the worker’s wages may barely be 
enough for his sustenance, he still tries to make all sorts of 
reductions to depress wages below the value of labor power so 
that even a minimum level of subsistence cannot be maintained 
by the worker. For example, there was a regulation in K’ai- 
luan Coal Mine: forty-seven cents daily for the mule as fodder, 
but not more than twenty-two cents daily for the miner in 
wages. ’’Men were inferior to mules.” Also, in old China, many 
plants had penal codes for the workers, with all sorts of fancy 
items. Sometimes, the fine was even higher than the wage. For 
example, emptying water indiscriminately was punishable; look¬ 
ing out of the window was also punishable; assembling and as¬ 
sociating were even more punishable. All the fines finally ended 
up in the capitalist's pockets as an additional source of income. 

The capitalist employed a large number of women and child 
laborers to engage in more cruel exploitation. With the employ¬ 
ment of a large number of women and child laborers, the work¬ 
er’s wages were often reduced to below the value of labor power. 



70 Fundamentals of Political Economy 


The wages of women and child laborers were even lower. In 
old China, women worked for more than ten hours daily, just 
like men, but their wages were only two-thirds or half that of 
men. The wages for child laborers were even lower, often only 
half that of women. Some capitalists merely provided some 
cheap meals with no money wage. The capitalist treated the 
’Young apprentices” and the "child laborers" as less than hu¬ 
man. Marx pointed out that the capitalist "extracts silk out of 
the blood of children who are so young that they have to be 
helped to their workshop." (9) Children in the growing stage 
and at school age were underfed, underclothed, and tortured 
by the capitalist. They were often beaten up and cursed. A 
large number of child laborers perished under the cruel ex¬ 
ploitation of the capitalist. 

In capitalist society, the capitalist not only cruelly exploited 
the worker, he also ruthlessly oppressed him. In old China, 
many capitalists stipulated plant regulations to oppress the 
worker. The tens or even a hundred penalty code items stripped 
much of the worker’s freedom. Examples were "searching be¬ 
fore and after work" and "the management has the right to fire 
workers." The plants were like prisons, and the workers were 
like prisoners. Some capitalists even had military and police 
forces stationed in the plant to oppress the workers. 

Capitalism brought untold suffering to the worker. It is an 
evil, exploitative system. But renegade Liu Shao-ch'i tried his 
best to defend the capitalist exploitative system and advocated 
that "exploitation has its merits." He even said, "Capitalist 
exploitation is not only not evil, it has its merits." This is all 
nonsense! Marx’s theory of surplus value is the most eloquent 
criticism of that so-called "exploitation has its merits." Liu 
Shao-ch’i and company's vain attempt to restore the capi¬ 
talist exploitative system in socialist China could only expose 
their evil countenance as the spokesmen of the bourgeoisie. 



Capitalist Exploitation and Oppression of the Workers 71 


Wage s Conceal the Exploitative R e lation 
of Capitalism 


Wages Are a Disguised Form of the 
Value or Price of Labor 

In capitalist society, the worker toiled in the capitalist’s 
plant and earned wages from the capitalist. The worker re¬ 
ceived a day’s wages after he toiled for a day. He received a 
week's wages after he toiled for a week. On the surface, it 
looked as if all his labor had been compensated and that it was 
an ’’equivalent exchange.” In fact, the form of wages concealed 
the exploitation of the worker by the capitalist. 

Marx pointed out: ’Wages are not what they appear to be. 
They are not the value or price of labor, but a disguised form 
of the value or price of labor power." (10) The wages advo¬ 
cated by the capitalist as "the value or price of labor" are en¬ 
tirely fictitious. 

The key lies in the distinction between labor power and labor. 
This "involves an extremely important question in political 
economy." ( 11) Under the capitalist system, what is being sold 
and bought as a commodity is labor power, not labor. 

Why is labor not a commodity and why can it not be bought 
or sold ? This is because, first, if labor is a commodity, it 
should exist before it is sold, just like other commodities. But, 
in fact, labor is the exercise of labor power. It does not exist 
before it is sold. It exists only after it is sold and used in the 
labor process. Also, once the worker's labor is hired out, it 
no longer belongs to the worker himself. His labor belongs to 
the capitalist. Second, if labor is a commodity, according to 
the requirements of the law of value, it must be exchanged for 
equivalent value. Then the capitalist should pay the worker the 
full value created by the worker as his wage and as payment for 
the worker's labor. If this were the case, then the capitalist 
would lose his source of wealth and surplus value would be 
abolished. There would no longer be capitalism. Third, if la¬ 
bor is a commodity, it should have a value. How should this 



72 Fundamentals of Political Economy 


value be determined? We know that the value of all commodi¬ 
ties is determined by the amount of embodied labor. If the 
value of labor is also determined by the amount of labor, the 
result is to evaluate labor with labor. This is a tautology. 

From this we can see that labor is not a commodity. It has 
no value. There is no such thing as "the value or price of la¬ 
bor." 

Under capitalism, the capitalist purchases labor power from 
the worker, but not labor. The wage paid to the worker by the 
capitalist is equivalent only to the value of the labor power. 
The remainder of what the worker's labor creates over and 
above the value of the labor power is surplus value which is 
exploited by the capitalist. Therefore, the capitalist wage re¬ 
flects the relation between the hiring capitalist and the hired 
worker, between the exploiting capitalist and the exploited 
worker. 

The Downward Trend of the 
Real Wage of t he Worker 

The capitalist usually pays wages in money form. When the 
worker sells his labor power, he obtains a certain amount of 
money. The wage expressed in money form is called the nomi - 
nal wage. The amount of money cannot reflect the actual stan¬ 
dard of living of the worker. The real standard of living can 
only be reflected by the amount of means of livelihood purchas¬ 
able by the money wage. This wage that reflects the real stan¬ 
dard of living of the worker is called the real wage. 

The nominal wage and the real wage are not always the same. 
With the nominal wage held constant, the real wage can decline. 
When the purchasing power of money declines and the prices 
of the means of livelihood go up, the same amount of the nomi¬ 
nal wage can only be exchanged for a smaller amount of means 
of livelihood. Then the real wage falls. Sometimes even if the 
nominal wage goes up a bit, but less than the increase in prices 
of the means of livelihood, the real wage will still decline. 

In capitalist society, there is a downward trend in the real 


Capitalist Exploitation and Oppression of the Workers 73 


wage of the worker. The bourgeoisie always use inflation, price 
increases, and rent hikes to increase the gap between the nomi¬ 
nal and the real wage and to exploit the worker. 

In old China, "wages increased at a snail's pace while prices 
went up like a balloon." To maintain their reactionary rule and 
plunder the people, the Chiang [ Kai-shek] dynasty quickened the 
operation of the money printing press. In the twelve years between 
1937 and 1949, the issue of notes increased by 140,000 million times 
and the price index increased by 8,500,000 million times. The 
worker in old China had more than his share of suffering from 
inflation. On the eve of the collapse of the Chiang dynasty, on 
every payday "the price of rice jumped three times while one 
trudged across the street." In old China, the worker not only 
was paid a low wage, but what he could buy with it was even 
less. The wage was not worth a damn. It was almost impossi¬ 
ble to support a family. Sometimes after strikes the nominal 
wage might go up a little, but prices went up a lot more. The 
lot of the worker was getting worse every day. What was even 
worse, the rents were very high. Even a run-down thatched 
shed cost a fortune. Marx and Engels pointed out, "After the 
exploitation by the plant owner, another group of bourgeoisie — 
landlords, proprietors, and pawn shop owners — were waiting 
to take turns getting their shares from the worker's wages."(12) 

The W or king Class Str ug gles 
against Capitalist Exploitation 


The decline in the real wage reduced the majority of workers 
to cold and starvation. The working class naturally rose to op¬ 
pose capitalist exploitation. 

The economic struggle which the working class undertook to 
increase wages in order to protect their right to survive and 
to oppose the cruel exploitation of the bourgeoisie was very 
significant. This was because it not only delayed the decline 
of real wages, but it was also able to strengthen the unity of 
the working class, elevate their class consciousness, and tem¬ 
per their combat spirit. But we must not exaggerate the 



74 Fundamentals of Political Economy 


significance of economic struggle. Marx pointed out that the 
working class "should not forget: in this daily struggle they 
are only opposing the effect, but not the cause that produces 
this effect; they are only delaying the downward trend, not 
changing the direction of the trend; they are only suppressing 
the symptom, not curing the disease." (13) Therefore, if the 
working class wants an ultimate solution, it cannot limit itself 
to economic struggles but must also extend from economic 
struggles to political struggles, overthrow the reactionary rule 
of the bourgeoisie, and demolish the capitalist exploitative sys¬ 
tem. 

However, all sorts of scabs advocated: It is only necessary 
to engage in economic struggles. According to their fallacies, 
there is no need for the working class to seize political power 
through violent revolution and demolish the capitalist system. 

It should be contented with a little wage increase and some im¬ 
provement in working conditions. These fallacies peddled by a 
handful of scabs were intended to vainly lead the proletarian 
revolutionary movement to the stray path of bourgeois reform¬ 
ism. They wanted the working class to serve as the capitalists' 
hired slaves forever. "Workers should not abide by the con¬ 
servative motto 'a fair day’s wage for a fair day's labor!' 

They should write on their banner the revolutionary slogan: 

T)o away with the system of hired labor! ’" ( 14) 

Major Study References 


Marx, Capital , Vol. 1, Chapters 4, 5, 10, 17. 

Marx, Wage Labor and Capital . 

Marx, Wage, Prices and P rofit. 

Chairman Mao, "The Analysis of Chinese Social Classes." 
Chairman, Mao, "The Chinese Revolution and the Chinese Com¬ 
munist Party," Chapter 1, Section 3; Chapter 2, Section 4. 

Review Problems 

1. How does surplus value arise? Why do we say that the 



Capitalist Exploitation and Oppression of the Workers 75 


production of surplus value is the nature of capitalist produc¬ 
tion? 

2. What methods does the capitalist use to exploit and op¬ 
press the worker ? 

3. Why do we say that the capitalist wage is merely a dis¬ 
guised form of the value or price of labor power ? 

4. Why do we have to learn Marx's theory of surplus value ? 
How do we use Marx's theory of surplus value to criticize Liu 
Shao-ch'i and company's viewpoint that '’exploitation has its 
merit"? 


Notes 


1) Marx, Capital, Vol. 1, Compl ete Works of Marx and 
Engels , Vol. 23, p. 219. 

2) Ibid. 

3) Ibid., pp. 185-186. 

4) Marx, Wage Labor and Capital , Selected Works of 
Mar x and Engels , Vol. 1, Jen-min ch'u-pan-she, 1972, p.362. 

5) Marx, Capital , Vol. 1, Complete Works of Marx and 
Engels , Vol. 23, p. 679. 

6) Marx, Capital, Vol. 3, Jen-min ch’u-pan-she, 1966, p. 280. 

7) Ibid., p. 272. 

8) Marx, Capital , Vol. 1, C omp lete Wor ks of Ma rx an d 
Engels, Vol. 23, p. 578. 

9) Ibid., p. 325. 

10) Marx, Critique of the Gotha Program , Selected 
Works of Marx and Engels, Vol. 3, Jen-min ch'u-pan-she, 
1972, p. 17. 

11) Engels, "Introduction to Wage Labor and Capital, " 
Selected Works of Marx and Engels , Vol. 1, Jen-min ch'u-pan- 
she, 1972, p. 341. 

12) Communist Manifesto , Selected Works of Marx and 
Engels, Vol. 1, Jen-min ch'u-pan-she, 1972, pp. 258-259. 

13) Marx, Wage, Prices and Profit, S elected Works of 
Marx and Engels, Vol. 2, Jen-min ch’u-pan-she, 1972, p.203. 

14) Ibid., pp. 203-204. 








5 

The Widening Gap between the Rich and 
the Poor in Capitalist Society 


Capital Accumulation and the 
Impoverishment of the Working Class* 


The capitalist tries his best to extract absolute and relative 
surplus value and to convert it into capital for the exploitation 
and oppression of the worker on a larger scale. This process 
of converting surplus value into capital is called capital accu¬ 
mulation. The analysis of capital accumulation makes us real¬ 
ize why in the old society the capitalist who never labored was 
getting richer and the toiling worker's lot was getting worse. 

It helps us further understand why the expropriation of the ex¬ 
propriator, the extinction of capitalism, and the inevitable tri¬ 
umph of socialism cannot be reversed by any reactionary 
forces and why the overthrow of the evil capitalist system is 
the great historical mission of the proletariat. 

Capital Accumu l ation Increases the 
Exploitation of the Workers 

Analyze Capitalist Simple Reproduction and Expose 
the Lie That the Capitalist Supports the Worker 

We said earlier that the conversion of surplus value expro - 
priated by the capitalist into capital is capital accumulation. 
Before we analyze capital accumulation, let us see what would 


*Tzu-pen-chu-i she-hui ti p'in fu yueh lai yueh hsuan-shu — 
tzu-pen chi-lei ho wu-ch’an chieh-chi p'in-k'un-liua. 


76 



The Widening Gap between Rich and Poor 77 


happen if the capitalist spent the expropriated surplus value all 
on himself instead of converting it to capital. Under this con¬ 
dition, the production of the capitalist could not be expanded. 

He could only carry on capitalist simple reproduction. 

Suppose a capitalist started a plant with 10,000 yuan, of which 
8,000 yuan was used to buy the plant building, raw materials, 
and machine equipment (to simplify the example, suppose this 
8,000 yuan of means of production was totally expended in the 
year with its value transferred to the products) and 2,000 yuan 
was used to purchase labor power. Further, suppose the rate 
of surplus value was 100 percent. Then the value of annual 
products would be equal to 8,000c + 2,000v + 2,000m = 12,000 
yuan, of which, 2,000 yuan would be surplus value. If the cap¬ 
italist spent this 2,000 yuan of surplus value on luxury con¬ 
sumption for himself and his family dependents, the capital in 
the capitalist’s hands at the beginning of the second year would 
still be 8,000c +2,000v = 10,000 yuan. If there were no change 
in the surplus value, the value of the second year's products 
would still be 8,000c + 2,000v + 2,000m = 12,000 yuan. In the 
course of reproduction, the scale of operation would not have 
expanded, staying at the original level. This reproduction 
based on the original scale is called simple reproduction. 

What does capitalist simple reproduction explain? 

First, we can clearly see who supports whom in the capital¬ 
ist society. If we look at it from one single production pro¬ 
cess, it looks as if the capitalist supports the worker by ad¬ 
vancing his capital as wages. This is how the capitalist puts 
it. But, if we look at it from the reproduction process, the cap¬ 
italist's lie is easily exposed. Wages are only part of the value 
created by the worker himself in the production process. In 
the value newly created by the worker is included not only the 
value for the support of the worker himself and the reproduc¬ 
tion of labor power, but also the surplus value for the support 
of the capitalist and for his extravagant living. Therefore, it 
is not the capitalist who supports the worker. On the contrary, 
it is the worker who supports the capitalist. 

Second, from the process of simple reproduction, we can see 



78 Fundamentals of Political Economy 


that the capital of the capitalist is converted from surplus 
value. Using our earlier example, this capitalist who started 
out with 10,000 yuan spent 2,000 yuan on his personal consump¬ 
tion. Thus, after five years, his initial capital would have been 
completely spent. But, through simple reproduction, after five 
years he still had 10,000 yuan as capital. This 10,000 yuan was 
no longer the capital he started out with, but the sum total of 
his continual extraction of surplus value in five years. Marx 
said, 'Ignoring all accumulation, the simple continuation of the 
production process or simple reproduction would, after a longer 
or shorter period of time, transform any capital into accumu¬ 
lated capital or capitalized surplus value." (1) 

Since the capital of the capitalist is converted from surplus 
value created by the worker, it is entirely reasonable that all 
means of production expropriated from the capitalist should 
belong to the proletarian state if the working class has seized 
political power. This is merely taking back the wealth created 
by the labor of the ancestors of the working class. 

Finally, from the process of simple reproduction, we can 
also see that capitalist reproduction not only reproduces vari¬ 
ous commodities, but also reproduces the capitalist production 
relations. In the process of reproduction, the worker continu¬ 
ously produces the variable capital used for the purchase of 
labor power. When the production process ends, the worker is 
still an empty-handed hired laborer, and the capitalist still 
possesses all the means for the exploitation of the worker. 

The Ca pit alist E xp ands Reproduction for the 
Sake of Extracting More Surplus Value 


We assumed above that the capitalist spent all the surplus 
value on his personal consumption. Because of this, reproduc¬ 
tion could only be carried on at the original scale. But, simple 
reproduction is not the characteristic of capitalist production. 

The characteristic of capitalist production is expanded re¬ 
production. 

To carry on expanded reproduction, the capitalist cannot 





The Widening Gap between Rich and Poor 79 


spend all the expropriated surplus value on personal consump¬ 
tion. He must spare part of it for conversion into capital to buy 
new machines and equipment and to hire additional workers be¬ 
fore he can expand the scale of operation and realize expanded 
reproduction. 

Suppose the capitalist started out with 10,000 yuan, of which 
8,000 yuan was constant capital and 2,000 yuan was variable 
capital, and that the rate of surplus value was 100 percent. 
When the production process was completed, the value of prod¬ 
ucts would be 8,000c + 2,000v + 2,000m = 12,000 yuan. Fur¬ 
ther, suppose that the capitalist used half of the 2,000 yuan of 
surplus value for personal consumption and the other half for 
accumulation to be converted into capital. If the proportion be¬ 
tween constant capital and variable capital were kept constant, 
then from this 1,000 yuan of new capital, 800 yuan would go into 
constant capital, and 200 yuan into variable capital. In the sec¬ 
ond year, the total amount of capital would be increased to 
11,000 yuan. Its composition would be 8,800c + 2,200v + 
2,200m = 13,200 yuan. Compared with the value of the first 
year’s products of 12,000 yuan, this capitalist realized ex¬ 
panded reproduction. 

From capitalist expanded reproduction, we can see that ex¬ 
panded production can be carried out only because part of the 
surplus value has been converted into capital. If, under the 
condition of simple reproduction, the capital invested by the 
capitalist can be seen as converted from surplus value only af¬ 
ter a period of time, then under the condition of expanded re¬ 
production, the added capital can be seen as converted from 
surplus value right from the beginning. 

Why does the capitalist not spend all of the surplus value on 
his personal consumption but instead carry out capital accu¬ 
mulation for expanded reproduction? Some bourgeois econo¬ 
mists explained capital accumulation as the virtue of "absti¬ 
nence" on the part of the capitalist, as if capital accumulation 
by the capitalist were for the good of society as a whole and in¬ 
volved a restraint of his consumption desire. 

Marx exposed the nature of ’’abstinence." Marx pointed out 



80 Fundamentals of Political Economy 


that the capitalist possessed "an absolute desire to get rich.” (2) 
The greed of the capitalist for surplus value is limitless. Sur¬ 
plus value can be increased continuously only if the capitalist 
continuously accumulates capital, increases the amount of cap¬ 
ital, and expands the scale of production. At the same time, 
capitalist competition also forces him to accumulate capital. 
Whoever has more capital is in an advantageous position with 
respect to the addition of equipment, the purchase of raw ma¬ 
terials, and the adoption of new techniques. He is also more 
likely to increase labor productivity and to depress the indi¬ 
vidual labor time of a commodity below the socially necessary 
labor time, so as to triumph in the competition. If the reverse 
were the case, he would fail in the competition and be swal¬ 
lowed up by the bigger capitalist. Competition becomes a 
source of pressure on every capitalist. The fear of failure and 
bankruptcy in competition forces the capitalist to engage in 
capital accumulation to strengthen his competitive power. 
"Competition transforms the internal law of capitalist produc¬ 
tion into a coercive external law governing every capitalist. 
Competition forces the capitalist to maintain his capital by ex¬ 
panding it continuously. And he expands his capital by progres¬ 
sive accumulation." (3) 

It can be seen that it is not "abstinence" but greed and fear 
which motivate the capitalist to convert part of the surplus 
value extracted from the worker into capital. The more the 
capitalist exploits, the larger the accumulated capital. The 
larger the accumulated capital, the more surplus value can be 
exploited. Therefore, capital accumulation is not only a result 
of the exploitation of the worker, but also a means by which the 
capitalist extends and expands his exploitation of the worker. 

The Unemployment of Workers Is the I n evitable 
Result of Capital Acc umul ation 

The Increase in the Organic Composition of Capital 
Leads to the Expulsion of the Worker by Machines 

The process of capital accumulation is not only a process of 







The Widening Gap between Rich and Poor 81 


increasing the total amount of capital. In this process, there is 
also the change in the composition of capital and the consequent 
adverse effect on the proletariat. 

From the material side, the composition of capital is ex¬ 
pressed as the proportion between means of production (plant, 
machines, equipment, raw materials) and labor power. There 
is a definite relation between the amount of means of production 
purchased and the number of workers employed. For example, 
there is a definite number of spindles a worker can manage 
using a certain amount of cotton each day. The level of this 
proportion depends on the technological level of production in 
society, the characteristics of various production spheres, and 
the degree of mechanization. It also depends on the technical 
equipment of various enterprises. Therefore, we can call this 
proportion the technical composition of capital. 

The composition of capital can also be viewed from the value 
viewpoint. The value of means of production is expressed as 
constant capital, and the value of labor power is expressed as 
variable capital. The proportion between constant and variable 
capital is called the value composition of capital. 

There is a close relation between the technical and value 
composition of capital. In general, the value composition of 
capital varies with the technical composition of capital. ’The 
value composition of capital, which is determined by the tech¬ 
nical composition of capital and which reflects its change, is 
called the organic composition of capital.” (4) The formula for 
the organic composition of capital is c : v. For example, sup¬ 
pose a capitalist has 10,000 yuan, of which 8,000 yuan is con¬ 
stant capital and 2,000 yuan is variable capital. Then the or¬ 
ganic composition of capital is 8,000c : 2,000v, that is, 4: 1. 

In the course of the development of capitalism, the organic 
composition of capital is not constant. To extract more sur¬ 
plus value and to gain an upper hand in competition, the capi¬ 
talist must improve the technical equipment of the enterprise 
by substituting machines for hand labor or new machines for 
old machines. Thus, the capitalist must increase his capital 
in machine equipment. The substitution of machines for labor 



82 Fundamentals of Political Economy 


enables the worker to produce even more products in a given 
period of time with an even higher consumption of raw mate¬ 
rials. The capitalist must also increase his capital for the pur¬ 
chase of more raw materials. Thus, with the continual accumu¬ 
lation of capital, the proportion of constant capital in the total 
capital constantly increases. On the other hand, the proportion 
of variable capital gets smaller all the time, leading to an in¬ 
crease in the organic composition of capital. 

In general, the precondition for the increase in the organic 
composition of capital is the increase in individual capital. Cap¬ 
ital can be increased in two forms: one is by capital accumula¬ 
tion, that is, an increase in the total amount of capital by the 
accumulation of individual capital; the other is by capital con¬ 
centration, that is, the absorption of small capital by big cap¬ 
ital through competition or the merger of several companies 
into a joint-stock corporation so that capital that was once 
scattered is concentrated into larger capital. Capital accumu¬ 
lation and capital concentration inevitably increase the organic 
composition of capital. 

The increase in organic composition of capital has serious 
repercussions for the working class. If the organic composition 
of capital is constant, the accumulation of capital will increase 
the corresponding demand for labor power. That is, it will cor¬ 
respondingly increase the employment opportunities of the 
worker. But after the organic composition of capital is in¬ 
creased, the result of capital accumulation is no longer the 
same. It can increase the total demand for labor power. But 
this increase will be much smaller than the increase in con¬ 
stant capital. Under certain conditions, the total demand for 
labor power may even be lower than before. This is because 
the demand for labor power does not depend on the size of total 
capital but on the size of variable capital. For example, when 
the organic composition of capital is 4 :1, it means that for ev¬ 
ery 100 yuan of total capital, 20 yuan can be used for hiring 
workers. But when the organic composition of capital is in¬ 
creased to 9:1, it means that for every 100 yuan, only 10 yuan 
is available for hiring workers. Thus, even if the total capital 



The Widening Gap between Rich and Poor 83 


increases from 10,000 yuan to 15,000 yuan, the amount of vari¬ 
able capital decreases from 2,000 yuan to 1,500 yuan. This 
demonstrates that the increase in the organic composition of 
capital reduces employment opportunities for the worker. In 
the capitalist society, the working class creates machines. But 
when the machines are used by the capitalist, a large number 
of workers are displaced and unemployed. The adoption of sew¬ 
ing machines by the capitalist led to the unemployment of many 
sewing workers. The adoption of packing machines led to the 
unemployment of many packing workers. The adoption of type¬ 
setting machines led to the unemployment of many typesetting 
workers. In the development process of capitalism, with the 
improvement in techniques and the increase in the organic com¬ 
position of capital, employment opportunities for the laborers 
are correspondingly reduced and unemployment increases. 

This is called the expulsion of workers by machines. 

Relative Surplus Population Is the Inevitable 
Outcome of Capital Accumulation 


The increase in the organic composition of capital relatively 
reduces the demand for labor power. But in the course of cap¬ 
ital accumulation, the supply of labor power increases abso¬ 
lutely. With the development of capitalist production techniques 
and the widespread adoption of machines, many labor operations 
were so simplified that many women and children could join the 
ranks of hired labor. At the same time, in the course of capital 
accumulation, a large number of small commodity producers 
and small capitalists went bankrupt and had to sell their labor 
power to support themselves. The development of capitalism 
in the countryside also brought bankruptcy to a large number 
of peasants who flocked to the city to earn their living. All 
these factors contributed to an absolute increase in the supply 
of labor power. 

Thus, on the one hand, the demand for labor power was re¬ 
duced relatively. On the other hand, the supply of labor power 
increased absolutely. In the end, there always exists in the 





84 Fundamentals of Political Economy 


capitalist society a large body of unemployed, resulting in a 
relative surplus in population. 

The so-called relative surplus population is ’’surplus” only 
in relation to the capital demand for it. It does not imply 
that the population is in absolute surplus such that it can no 
longer be supported by the means of livelihood produced by so¬ 
ciety. In fact, there is no such thing as an absolute population 
surplus because a person not only has a mouth that can con¬ 
sume food grain, but also two hands that can create certain 
material wealth. Once the laboring masses control their own 
destiny, they can advance toward the depth and width of produc¬ 
tion to create ever more means of livelihood for a more diver¬ 
sified life. Only in the capitalist society, where the laborers 
cannot control their own destiny and the machines created by 
them are used as capital, are the workers displaced as relative 
surplus population. Therefore, Marx called the relative sur¬ 
plus population an outcome of ”a special law of population under 
the capitalist mode of production.” He pointed out, ’’Surplus 
worker population is an inevitable outcome of accumulation or 
the development of wealth on the capitalist basis.” (5) 

There are three basic forms of surplus population in the cap¬ 
italist society: 

First, mobile surplus population. This refers to the unem¬ 
ployed population which has been temporarily displaced in the 
production process. This kind of unemployment is most com¬ 
mon in industrial centers. In time of crises and after new ma¬ 
chines and new techniques are adopted, some workers will be 
displaced. But in time of recovery and when industry further 
develops, many of these unemployed workers will be absorbed 
back into factories. Very few workers in capitalist countries 
can escape from unemployment at one time or another. Most 
people are employed off and on. 

Second, disguised surplus population,that is, surplus popula¬ 
tion in the countryside. After agricultural production has be¬ 
come capitalist and with the increase in the organic composition 
of capital, the demand for agricultural workers decreases 
steadily. Moreover, in agriculture this displacement of labor 



The Widening Gap between Rich and Poor 85 


power is absolute. Unless new land is reclaimed, no additional 
labor power can be absorbed. Some of the laborers displaced 
by capitalist agriculture drift to the city. Others still cling to 
a small piece of land and barely support themselves by inten¬ 
sive cultivation and doing odd jobs. They may not be unem¬ 
ployed in form, but they are actually surplus in agricultural 
production. This is called disguised surplus population. 

Third, static surplus population. These people perform house¬ 
hold chores and do odd jobs. Though still belonging to the cur¬ 
rent labor force, their jobs are not stable. Their jobs often in¬ 
volve long hours and low wages. Their standard of living is de¬ 
pressed below the average level for the working class. 

In the capitalist society, in addition to the above three kinds 
of surplus population, there is a large number of very poor 
people who depend on welfare and begging for their livelihood. 
Among them are the aged, the weak, the handicapped, the or¬ 
phaned, and vagabonds who have lost their labor capacity. They 
constitute the lowest stratum of the relative surplus population, 
and their lot is the worst. 

Relative surplus population is an inevitable outcome of cap¬ 
ital accumulation. At the same time, these people become the 
lever of capital accumulation, or even a condition for the exis¬ 
tence and development of the capitalist mode of production. The 
capitalist uses the existence of the unemployed workers as a 
trump card to increase oppression and exploitation of the cur¬ 
rently employed. From the mouth of the capitalist, one can of¬ 
ten hear such vicious words as, 'It is more difficult to find a 
hundred dogs than to find a hundred workers." Why is the cap¬ 
italist so ferocious ? Because outside the door of the plant there 
are thousands and thousands of unemployed workers. They are 
used by the capitalist to threaten the workers inside the plant 
and to depress their wages. At the same time, capitalism de¬ 
velops amidst competition and chaos and is characterized by 
sudden contractions and expansions. When production suddenly 
expands, the capitalist's demand for labor cannot be met by the 
natural increase of labor power. The capitalist requires a la¬ 
bor power "reservoir." Relative surplus population provides 



86 Fundamentals of Political Economy 


such a "reservoir." In this sense, we call the huge army of un¬ 
employed in capitalist society an industrial reserve army. It 
is required by the existence and development of the capitalist 
mode of production. 

Malthus*s "An Essay on the Principle of Popul at ion" 

Is a Reactionary Fallacy in Defense of Capitalism 


In the capitalist society, the widespread existence of a huge 
army of unemployed is a "good" thing for the capitalist because 
it is conducive to exploitation. But it is also a shameful thing 
because it makes the so-called civilized country look very un¬ 
civilized. To remedy this situation, some intellectuals in the 
service of the bourgeoisie racked their brains to produce bi¬ 
ased theories for the defense of the capitalist system. In the 
early nineteenth century, the reactionary An Essay on the Prin- 
ciple of Populat ion cooked up by a vulgar English economist 
named Malthus was one such biased theory. 

Malthus advanced a notorious argument. He said that popula¬ 
tion increases by the geometric progression (1, 2, 4, 8...), 
while the means of livelihood increases by the arithmetic 
progression (1, 2, 3, 4...). He argued that this is the basic 
reason for surplus population, unemployment, and poverty 
among the masses. This contention was intended to explain 
that unemployment and poverty are not the evils of the capital¬ 
ist system, but a result of the law of Nature. According to 
Malthus's theory, wars and plagues are a blessing to human 
society. In wars and plagues, a large number of people die, 
thus ameliorating the effects of surplus population and render¬ 
ing the increase in population more compatible with the increase 
in the means of livelihood. 

Facts are stronger than arguments. Malthus’s reactionary An 
Essay on the Principle of Popu l ation does not hold water. How did 
the pseudoscience that purported to show the geometric increase 
of population and the arithmetical increase of the means of live¬ 
lihood come into being ? What really happened was that Malthus 
took the increase in population in America in one TDeriod as the 




The Widening Gap between Rich and Poor 87 


basis for his rate of population increase. He also took the in¬ 
crease in food production for one period in France as the basis 
for his rate of increase in the means of livelihood. The rapid 
increase in the American population at that time was not mainly 
due to the natural multiplication of population, but to other fac¬ 
tors such as immigration. As to the food production of France, 
if it was compared with the increase of population in France 
and not with the increase of population in America, then it did 
not lag behind the increase in population, but exceeded the in¬ 
crease in population. In 1760, the population of France was 2.1 
million. The average output of food grain per capita was 450 
liters. Eighty years later in 1840, the population of France in¬ 
creased to 3.4 million, an increase of 62 percent. But the in¬ 
crease in food production was even faster. In 1840, the average 
output of food grain per capita was 832 liters, an increase of 
85 percent. The data of many other capitalist countries also 
showed that the increase in population did not exceed the in¬ 
crease in the means of livelihood. On the contrary, the increase 
in the means of livelihood exceeded the increase in population. 
But, even so, the laboring people were very poor, and their lot 
miserable. Malthus's defense of the evils of the capitalist sys¬ 
tem by means of the so-called absolute surplus population was 
a futile effort. 

Thepernicious influence of Malthus’s An Essay on the Principle 
of Population was widespread in the old China. Imperialists and 
Kuomintang reactionaries all along used Malthus’s An Essay on 
the Principle of Population as a tool to oppose the Chinese peo¬ 
ple's revolution. Prior to the liberation, they uttered nonsense 
like the Chinese people were poor because there were too many 
of them, and they attempted to blame Nature for the evils of im¬ 
perialism, feudalism, and bureaucratic capitalism. On the eve 
of the national liberation, they again talked nonsense, complain¬ 
ing that China had too many people. According to them, the 
people's government could not solve the food problem and would 
not last more than a few months. Chairman Mao sternly refuted 
this reactionary fallacy. He said, "The large population of 
China is a good thing. We know how to handle an even larger 



88 Fundamentals of Political Economy 


population. The solution is in production." ’devolution plus 
production can solve the food problem." (6) The experience of 
socialist China since its establishment has completely vindi¬ 
cated Chairman Mao’s scientific judgment. Under the guidance 
of Chairman Mao's revolutionary line, unemployment has been 
eliminated in China. The socialist economy flourishes, and the 
people's standard of living steadily increases. A poor and back¬ 
ward China has established a socialist country on its way to 
prosperity and growth. The imperialist fallacies went thor¬ 
oughly bankrupt. 

Capital Accumul at ion Leads to the 

Impoverishment of the Proletariat 


The Polarization between the Rich and the Poor 
Is a General Law of Capitalist Accumulation 


Capital accumulation has entirely different consequences for 
the bourgeoisie and the proletariat. To the bourgeoisie, the 
process of capital accumulation is the process of capital addi¬ 
tion and concentration and a process of the bourgeoisie's wealth 
expansion. To the proletariat, the process of capital accumula¬ 
tion is a process whereby "machines displace workers," and a 
process whereby the ranks of the unemployed are swollen, the 
employed workers are subject to increasing exploitation, and 
the living conditions of the whole working class worsen steadily. 
The polarization between the rich and the poor in capitalist so¬ 
ciety during capital accumulation will not shift according to hu¬ 
man will. On one end of society is wealth accumulation; on the 
other is poverty accumulation. Marx pointed out, "This is an 
absolute and general law of capitalist accumulation." (7) 

The revelation of this law by Marx is very significant. It tells 
us that the working and living conditions of the proletariat are 
determined by the capitalist production relations. Under the 
capitalist system, the development of production will only lead 
to the impoverishment of the proletariat. This impoverishment 
is not only relative but also absolute. 





The Widening Gap between Rich and Poor 89 


The Steadily Declining Share of the Proletariat in the 
National Income Leads to Relative Impoverishment 


National income is the sum total of the newly created value 
of the whole society in one year. In capitalist society, national 
income is first divided into the part that goes to the workers’ 
wages and the part that is plundered by the capitalists as sur¬ 
plus value. In the development of capitalism, what will happen 
to the income shares that go to the workers and to the capital¬ 
ists respectively ? 

National income is wholly created by the laborers and in¬ 
creases steadily in the process of expanded reproduction. Un¬ 
der capitalism, the share of wages received by the proletariat 
steadily declines, and the share of surplus value received by 
the bourgeoisie steadily increases. This phenomenon is called 
the relative impoverishment of the proletariat. According to 
figures published by the United States government, the share 
of wages of American workers in the national income was 45.6 
percent in 1843, 43.5 percent in 1866, 42.7 percent in 1891, 

37 percent in 1938, 33.3 percent in 1945, and 29.7 percent in 
1956. From these figures, we can see that with capital accu¬ 
mulation, the income of the workers declined steadily in rela¬ 
tive terms, while the wealth expropriated by the bourgeoisie 
increased steadily. 

The Steady Deterioration of Labor Conditions 
and Living Conditions Leads to the Absolute 
Impoverishment of the Proletariat 

In capitalist society, there exists not only the relative im¬ 
poverishment of the proletariat, but also their absolute impov¬ 
erishment. This is what Lenin pointed out: "The impoverish¬ 
ment of the workers is absolute. That is to say, they become 
poorer and poorer, their lives more miserable, their meals 
worse, and their stomachs less full. And they have to be 
crowded into basements and attics." (8) 

The major manifestations of the absolute impoverishment 






90 Fundamentals of Political Economy 


of the proletariat are as follows: 

First, the existence of a large number of unemployed work¬ 
ers. Unemployment is the constant threat faced by the worker 
in a capitalist country. Once he is unemployed, he loses his 
source of income. His livelihood becomes a serious problem. 
This is an important indicator of the deterioration of the mate¬ 
rial living conditions of the proletariat. In the United States, 
the number of unemployed in 1945 was 1.1 million; in 1955, 
2.654 million; in 1968, 2.8 million; and in 1971, it rose to 5 mil¬ 
lion. In England, the unemployment situation was also very se¬ 
rious. The number of unemployed workers in 1952 was 500,000. 
By February 1972, it had increased to more than 1.6 million. 

Second, the decline of real wages. The lot of the employed 
workers in a capitalist country is not any better. The wage of 
the worker is often below the value of labor power, so that it 
is difficult for the worker to maintain normal livelihood. Some¬ 
times through struggles with the capitalist, the nominal wage 
may be increased a little. But since widespread inflation exists 
in the capitalist countries, the increase in the money wage is 
often behind the increase in prices. In the end, not only is the 
real wage not increased, it may even decline. For example, 
according to official United States statistics, from December 
1969 to December 1970 the wages of manufacturing workers in¬ 
creased by 2.6 percent. In the same period, the consumer price 
index rose by 5.5 percent. Therefore, the real wage of the man¬ 
ufacturing workers declined by 2.9 percent. Besides, there are 
numerous taxes in the capitalist countries which take away a 
substantial portion of the income of the laboring people. Ac¬ 
cording to official United States statistics: In the thirty years 
between 1940 and 1970, the amount of taxation increased by six¬ 
teen times. The total private debt of the United States (includ¬ 
ing housing mortgages and consumer credit) was 197.8 billion 
dollars, averaging $1,133 per capita. At the end of 1970, the 
total private debt rose to 577.9 billion dollars, averaging 
$2,832 per capita. In 1970, repayment of debts and payment of 
interest of the American people amounted to an average of 22.3 
percent of their annual incomes. Taxation, repayment of debts, 



The Widening Gap between Rich and Poor 91 


and payment of interest amounted to about half of the annual 
income of the American people. 

Third, poor living conditions. Because of low real wages, 
the worker in a capitalist country must put up with poor living 
conditions. Poor living conditions are especially pronounced 
with respect to housing conditions. Due to the anarchic condi¬ 
tions of production in capitalist society and the blind concentra¬ 
tion of industrial production and population, the size of a few 
cities gets larger and larger, and the housing conditions of the 
worker steadily deteriorate. Marx pointed out, ’The faster the 
capital accumulation of an industrial city or a commercial city, 
the faster the inflow of human material available for exploita¬ 
tion, and the worse the temporary accommodations arranged 
for them.” (9) Marx and Engels commented several times in 
their works on the deterioration of the worker’s housing condi¬ 
tions under capitalism and described the extremely poor condi¬ 
tions of the slum areas in big cities such as London. Today,the 
number of slums in the big cities of the capitalist countries is 
still increasing. In New York City, the biggest American city, 
the number of people living in slum areas was 1.664 million in 
1950. By 1957, it had increased to 2.572 million. The total pop¬ 
ulation of the United States in 1959 was about 180 million, of 
which 22 million lived in urban slums with 44 million people 
living in substandard dwellings. 

Pollution hazards such as exhaust fumes, waste materials, 
and effluents further degrade the worker’s housing conditions 
and adversely affect his health. The more developed industry 
is, the more serious the urban pollution is. The rich capitalists 
can live in their garden villas in the suburbs and leave the work¬ 
ing masses behind to suffer. In some big cities of the capitalist 
countries which have serious air pollution, each inhabitant in¬ 
hales a large amount of poisonous gases. In these cities, the in¬ 
cidence of emphysema, bronchitis, and asthma is very high, and 
the resulting casualty rate is correspondingly high. In Europe, 
the United States, and Japan, the number of workers who are 
dismissed because of emphysema is increasing. 

In the United States, as far as medical care conditions are 



92 Fundamentals of Political Economy 


concerned, "the front doors of the hospital are wide open, but 
there is no entry for the sick who cannot afford to pay.” The 
registration fee for one visit amounts to one-third of the daily 
wage of a worker with medium income. The operating fee for 
appendicitis amounts to more than two months' wages. An or¬ 
dinary worker's family must save for several months before 
they can afford the delivery fee. From 1965 to 1972, the annual 
increase in hospitalization fees was 12.3 percent on the aver¬ 
age. The consulting fee increased by an annual average of 6.1 
percent. Many workers go to work even when they are ill be¬ 
cause they cannot afford to pay the consulting fee, and they die 
prematurely as a result. 

Fourth, excessive labor intensity and poor laboring condi¬ 
tions. With the development of mechanization and automation 
in enterprises, not only are workers increasingly converted 
into appendages of machines, but labor intensity is also greatly 
increased. One American auto worker complained: "In ancient 
Greece and the Roman Empire, even the unfortunate sailor 
could rest beside his oar for awhile when the wind was favor¬ 
able. Now, the worker working beside a conveyer belt cannot 
even take a breath when the machine parts come rolling one af¬ 
ter another.” As a result of the adoption of the "acceleration 
system" to intensify exploitation and oppression of the worker, 
some workers in American plants lose their labor capacity af¬ 
ter working for eight to ten years. Many more workers cannot 
adjust to fast work when they reach forty years old. Because 
of the fast working pace and the lack of labor protection facili¬ 
ties, accidents at work are numerous. The United States gov¬ 
ernment has to admit that at least 85 percent of American 
workers work under the constant risk of injury. Every year 
3 to 5 percent of American workers die or are injured in in¬ 
dustrial accidents. Thus, the advancements in science and 
technology in the capitalist countries are achieved at the ex¬ 
pense of the working class’s steady impoverishment and mis¬ 
ery. 

It is irrefutable, as demonstrated by the above-mentioned 
facts, that impoverishment does exist in capitalist society. 



The Widening Gap between Rich and Poor 93 


The bourgeoisie and their agents hidden in the ranks of the pro¬ 
letariat attempt in vain to deny the existence of the proletar¬ 
iat's impoverishment by pointing to the phenomena of some 
temporary, local, and partial improvements. 

First, we must analyze the question of the impoverishment 
of the proletariat from the class viewpoint. We must first 
eliminate those worker-aristocrats in the ranks of the prole¬ 
tariat who have been bought by the bourgeoisie. A handful of 
worker-aristocrats has indeed enjoyed a higher standard of 
living at the charity of the bourgeoisie. They are no longer 
members of the workers' ranks, but renegades of the prole¬ 
tariat. 

On the issue of the impoverishment of the proletariat, we 
must analyze it from an historical and concrete viewpoint. 
Since the standards of living at different times and in different 
countries are not the same, it is impermissible to make a sim¬ 
ple comparison of the present with the past. In the past, even 
an emperor could only use oil lamps. Today, most workers in 
the capitalist countries use electric lights. One cannot say that 
since the workers have electric lights there is no poverty. 
Would it not be absurd to claim that the life of a worker today 
is better than that of an emperor ? 

On the issue of the impoverishment of the proletariat, we 
must take an overall viewpoint. The so-called overall view¬ 
point means that we should not judge the living conditions of 
the workers on the basis of an individual plant, a special local¬ 
ity, or a specific period. We should judge the living conditions 
of the working class over a long period of time. In other words, 
we must look at not only the living conditions of the employed 
workers, but also at the living conditions of the unemployed and 
semiunemployed workers. We must look at not only the living 
conditions of the working class in the imperialist countries, but 
also at the living conditions of the working class in the colonies. 
We must look at not only the living conditions of the working 
class in times of illusory capitalist prosperity, but also at the 
working conditions of the working class in times of economic 
crisis. Then, it is not difficult to tell that while the living 



94 Fundamentals of Political Economy 


conditions of the workers might have improved in individual 
plants and localities and at some particular times, the condi¬ 
tions of the whole working class are steadily becoming poorer. 

The Proletariat Is the Gravedigger of Capitalism 


The process of capital accumulation is the process by which 
the bourgeoisie gets richer and the proletariat gets poorer. It 
is also a process in which the contradictions between the pro¬ 
duction relations and productive forces of capitalism are in¬ 
creasingly more acute. In the development process of the cap¬ 
italist economy, scattered, isolated, and small-scale individual 
production is transformed into large-scale social production. 
The development of social production under capitalism consists 
of two aspects: First, the capitalist plant is different from the 
small workshop of the individual handicraftsman. In the handi¬ 
craft workshop, the handicraftsman single-handedly completes 
the production process. In the capitalist plant, tens, hundreds, 
or thousands of workers are distributed in various workshops 
and sections. They complete the manufacture of commodities 
through division of labor and cooperation under the orders of 
the capitalist and his agents. Second, social division of labor 
steadily develops. Production becomes more specialized. The 
various departments and enterprises in social production are 
closely associated and dependent on one another. With the de¬ 
velopment of intraplant and social division of labor, production 
is "transformed from a series of individual actions into a se¬ 
ries of social actions. Products are transformed from individ¬ 
ual products into social products." (10) Lathes, automobiles, 
cotton fabrics, and leather shoes are products of the joint labor 
of many workers. Nobody can say, 'This is my product." 

Production becomes social in nature. But the means of pro¬ 
duction and the products from social labor do not belong to so¬ 
ciety. They belong to the capitalist himself. Thus, contradic¬ 
tions between social production and capitalist private owner¬ 
ship arise. This is the basic contradiction of capitalism. Cap¬ 
italist private ownership severely restricts- the development of 




The Widening Gap between Rich and Poor 95 


large-scale social production. Capitalist production relations 
increasingly restrict the development of productive forces and 
become fetters to the development of productive forces. Only 
by demolishing private ownership and establishing socialist 
collective ownership and by substituting socialist production 
relations for capitalist relations can this basic contradiction 
be resolved. Therefore, the extinction of capitalism and the 
emergence of socialism is an inevitable trend of historical de¬ 
velopment that cannot be changed by man f s will. 

But the historical process in which socialism replaces cap¬ 
italism cannot be spontaneously realized. The bourgeoisie, 
which benefits from the capitalist system, will inevitably ob¬ 
struct the social transformation. To realize this transforma¬ 
tion, there must be a social force that crushes the resistance 
of the bourgeoisie. This social force is the proletariat. The 
proletariat is the representative of advanced productive forces. 
It is oppressed and exploited, but it is the most conscious class 
with the most thoroughly revolutionary nature. Under the edu¬ 
cation of Marxism, it will surely rise to overthrow the capital¬ 
ist system. "The contradiction between social production and 
capitalist possession is expressed as the opposition between 
the proletariat and the bourgeoisie." (11) The proletariat ma¬ 
tures and grows steadily in the process of capital accumulation. 

The process of capital accumulation and expanded reproduc¬ 
tion is not only the expanded reproduction of material means 
of livelihood, but also the expanded reproduction of capitalist 
production relations. It produces bigger capitalists on the one 
hand and more hired laborers on the other. Therefore, the pro¬ 
cess of capital accumulation not only prepares the material 
conditions for the extinction of capitalism, namely large-scale 
production on a social basis, but also produces the gravedigger 
of capitalism — the proletariat. 'The bourgeoisie not only has 
forged weapons for its own destruction, it has also trained peo¬ 
ple who will use these weapons — modern workers, namely the 
proletariat." ( 12) The proletariat emerged with the appearance 
of capitalism and strengthened and became conscious in the 
process of capital accumulation. With the development of 



96 Fundamentals of Political Economy 


capital accumulation, the ranks of the proletariat gradually 
swell; with large-scale social production, organizational dis¬ 
cipline is instilled in the proletariat; and with the impoverish¬ 
ment of the proletariat, the contradictions between the prole¬ 
tariat and the bourgeoisie steadily deepen. Experienced in clast 
struggle and armed with Marxism, the proletariat becomes a 
forward-looking, selfless class richly endowed with revolution¬ 
ary thoroughness. 

In the process of capital accumulation, the great development 
of social production inevitably reaches a stage when it can no 
longer be accommodated in the capitalist bombshell. Marx con¬ 
fidently announced: "This bombshell will explode. The knell of 
capitalist private ownership is about to toll. The expropriator 
will be expropriated." (13) Capitalism will surely pass away, 
and socialism will triumph. This is an historical tendency of 
capital accumulation. 

Major Study References 


Marx, Capital , Vol. 1, Part 7. 

Marx, "The Impoverishment of the Capitalist Society." 
Chairman Mao, "The Bankruptcy of the Idealist Conception 
of History." 

Review Problems 


1. What conclusions can we reach by the analysis of simple 
reproduction and expanded reproduction ? 

2. What are the reasons for worker unemployment and the 
impoverishment of the proletariat in capitalist society ? 

3. Why do we say that the proletariat is the gravedigger of 
capitalism ? 


Notes 


1) Marx, Capital, Vol. 1, Complete Works of Marx and 
Engels, Vol. 23, p. 625. 



The Widening Gap between Rich and Poor 97 


2) Ibid., p. 649. 

3) Ibid., pp. 649-650. 

4) Ibid., p.672. 

5) Ibid., p. 692. 

6) "The Bankruptcy of the Idealist Conception of History," 
Selected Works of Mao Tse-tung , Vol. 4, Jen-min ch'u-pan- 
she, 1968, pp. 1400-1401. 

7) Marx, Capital , Vol. 1, Complete Works of Marx and 
Engels , Vol. 23, p. 707. 

8) "The Impoverishment of the Capitalist Society," Com¬ 
plete Works of Lenin , Vol. 18, p. 430. 

9) Marx, Capital , Vol. 1, Complete Works of Marx and 
Engels , Vol. 23, p. 725. 

10) Engels, Anti-Duhring , Selected Works of Marx and 
Engels , Vol. 3, Jen-min ch’u-pan-she, 1972, p. 309. 

'll) Ibid., p. 311. 

12) Communist Manifesto , Selected Works of Marx and 
Engels , Vol. 1, Jen-min ch’u-pan-she, 1972, p. 257. 

13) Marx, Capital , Vol. 1, Complete Works of Marx and 
Engels, Vol. 23, pp. 831-832. 



6 

The Process of the Movement of Capital 
Is the Process of Exploiting and 
Realizing Surplus Value 


The Circular Flow of Capital, the Turnover of 
Capital, and the Reproduction of Social Capital* 


Capital must be in constant motion to play its role. It passes 
from the exchange process to the production process and then 
from the production process to the exchange process in an end¬ 
less repetition. 

In the previous two chapters, we temporarily ignored the ex¬ 
change process and looked at capital in the production process. 
In this chapter, we shall analyze the motion of capital and its 
inherent contradictions from the exchange viewpoint. 

The Circulation of Capital Passes through 
Three Phases and Takes Three Forms 


The Three Phase s of Capital Circulation Represent t he Unity 
between the Production Process and the Exchang e Process 

In its motion, capital passes successively through three 
phases and takes three corresponding forms. 

*Tzu-pen ti yun-tung kuo-ch'eng shih cha-ch'ii ho shih-hsien 
sheng-yu chia-chih ti kuo-ch'eng — tzu-pen hsiin-huan chou- 
chuan ho she-hui tzu-pen ti tsai sheng-ch'an. 


98 



Capital Movement and Surplus Value 99 


In the first phase of capital motion, the capitalist must first 
take out a certain amount of money to purchase means of pro¬ 
duction and labor force in the market. Using G to represent 
money, W commodities, A labor force, and Pm means of pro¬ 
duction, this process can be illustrated as follows: 

A 

G-W<^ 

Pm. 

In this phase, the money in the capitalist’s hands serves as 
a means of purchase and a means of payment. However, at the 
same time, it also serves as capital because what the capitalist 
purchases are the labor force and means of production needed 
to extract surplus labor from the laborer. Here money becomes 
money capital. Through the purchase of means of production and 
labor power, money capital is transformed into production cap¬ 
ital. Without money capital, there is no production capital and 
no production of surplus value. The function of money capital 
is to prepare for the creation of surplus value. 

In the second phase of capital motion, the capitalist engages 
in production by combining the means of production with the la¬ 
bor force. Thus, the exchange process of capital is terminated, 
and its production process is started. Through this process, la¬ 
bor power is consumed, raw materials are processed, equip¬ 
ment is worn down, and a certain amount of commodities is pro¬ 
duced. Production capital is thereby transformed into commod¬ 
ity capital. 

The commodity capital in this phase already embodies the 
surplus value created by the worker. It not only looks different 
from the commodities bought earlier but also has higher value 
than the original capital. 

This process can be illustrated as follows: 

A 

W<^ ...P...W.' 

Pm 



100 Fundamentals of Political Economy 


Here P represents production capital in the production pro¬ 
cess. The dotted lines before and after P denote the termination 
of exchange and the beginning of production. W' represents com¬ 
modities with embodied surplus value. 

In this phase, the means of production and the labor force not 
only play the role of factors of production but also the role of 
capital because these means of production and labor force are 
combined in the hands of the capitalist for the production of 
surplus value. The function of production capital is the produc¬ 
tion of surplus value. 

In the third phase of capital motion, the capitalist must take 
the commodities which have thus been produced and embodied 
with surplus value to the market for sale. Through the sale of 
commodities, commodity capital is again transformed into money 
capital. Thus, capital is converted back to the form of money. 

This process can be illustrated as follows: 

W'-G\ 

Here G' denotes money capital whose value has been aug¬ 
mented. It consists of both the value of capital advanced by the 
capitalist and of the realized surplus value. Therefore W'—G' 
is not only a transformation process in form between commodi¬ 
ties and money, but more importantly, is also a process in 
which the surplus value embodied in the commodities and ex¬ 
propriated by the capitalist is realized. The function of com¬ 
modity capital is to realize surplus value. 

The three phases and three forms of capital show that capital 
in each of the phases and forms performs an independent func¬ 
tion. After a certain function has been performed, it passes into 
another phase and takes another form. This capital which goes 
through these successive transformations is industrial capital. 
This so-called industrial capital not only includes manufacturing 
capital, but also the capital in other material production sectors 
such as agriculture and construction. This capital changes its 
form successively and passes through three phases to increase 
its value and then returns to its starting point. This motion is 



Capital Movement and Surplus Value 101 


the circulation of capital. Its entire process can be shown as 
follows: 


G-W<^ .. .P... W'—G*. 

X Pm 

In the circulation of industrial capital, the first and third 
phases are exchange processes; the second is a production pro¬ 
cess. The production process plays the determining role in these 
three phases because it is the only process which can produce 
surplus value. In the first and third phases, merely the form of 
capital is transformed; its value remains constant. However, 
the exchange processes are indispensable for the circulation of 
industrial capital. Without the exchange processes, the capital¬ 
ist would not be able to produce and realize surplus value. 
Therefore, the circular flow of industrial capital is the unity 
between the production and exchange processes. Because of 
this, the three phases of circulation in industrial capital must 
be interrelated, and capital must pass from one phase to an¬ 
other. If the circulation of capital is hindered in the first phase 
(G—W), it becomes hoarded money and cannot play the role of 
capital. If its circulation is hindered in the second phase, there 
will be no production of surplus value. If its circulation is hin¬ 
dered in the third phase, then the surplus value created cannot 
be realized. 

The i rcula tion of Industri al Capital Repre sents 
the Uni ty amon g Three Ci rcul ar Flo ws 

To extract surplus value continuously, the capitalist must en¬ 
sure the continuous circulation of capital. Thus, the formula 
for the circulation of industrial capital is endless: 

_( 2 )_ 

G-W...p7.W’-G\ G-W... P... W'-G*. G—W. . . P .. .etc. 

i____i 


(i) 


(3) 



102 Fundamentals of Political Economy 


The above formula shows that the continuous motion of indus¬ 
trial capital assumes not merely one, but three, circular flows, 
namely, (1) circulation of money capital: G.. . G'; (2) circulation 
of production capital: P.. .P; and (3) circulation of commodity 
capital: W'—W\ To ensure the continuous circulation of capital, 
the capitalist must ensure that his capital exists simultaneously 
in three forms and that the capital in its three forms circulates 
continuously according to the circulation flows. For example, 
say a capitalist has 60,000 yuan of capital. He divides it into 
three parts, with 20,000 yuan in the form of money capital, 

20,000 yuan in the form of production capital, and 20,000 yuan 
in the form of commodity capital. They are made to circulate 
along their respective courses. Thus, while this capitalist trans¬ 
forms 20,000 yuan of commodity capital into money capital, 
20,000 yuan of production capital is being transformed into com¬ 
modity capital and 20,000 yuan of commodity capital into produc¬ 
tion capital. If all 60,000 yuan were in one form, production 
could not be carried on continuously, but only intermittently. If 
the circulation of capital in any one of the three forms is hin¬ 
dered in its motion so that circulation is interrupted, for exam¬ 
ple, if commodities cannot be sold and commodity capital can¬ 
not be transformed into money capital, then the circulation of 
the whole capital is destroyed, and the motion of capital inter¬ 
rupted. Thus, the capitalist is forced to close down production. 

The Tur nover o f Cap it al Is the Continual P roduction 
a nd Realization of Surplus Value 

The Length of Production and Ex change Tim e 
Determines the Speed of Capital Turnover 


The circulation of capital continues in an endless repetition. 
The continuous circulation of capital is called the turnover of 
capital. Marx pointed out, ,r When the circulation of capital is 
regarded as a periodic process and not as isolated incidents, it 
is called the turnover of capital." (1) 

The turnover of capital passes through the production and 







Capital Movement and Surplus Value 103 


exchange spheres. The period when capital is in the production 
sphere is called the production time of capital. The period when 
capital is in the exchange sphere is called the exchange time of 
capital. The sum of these two constitutes the turnover period 
of capital. 

The production period of capital includes the following three 
parts: 

First, the period when the means of production perform their 
function in production. This is primarily the labor time spent 
by the laborer on objects of labor to produce certain products. 
The length of labor time is determined by two factors. One is 
the nature of the production sector. For example, a yarn mill 
can spin a certain amount of cotton into yarn in one day; but a 
shipyard takes several months or years to build a ship. Thus, 
the latter requires longer labor time than the former. Another 
is the labor productivity of the enterprise. Among enterprises 
producing the same kind of product, the enterprise with higher 
labor productivity takes a shorter time to produce the product. 
On the other hand, a longer time is required by enterprises 
with lower labor productivity. In some production sectors, the 
period when the means of production perform their function in 
the production process also includes time needed for natural 
forces to act on the objects of labor as well as labor time. For 
example, wine brewing requires time for fermentation, timber 
takes time to dry, and crops take time to grow. 

Second, the period when production is interrupted but the 
means of production still stay at the production sites. For ex¬ 
ample, when machines and equipment are idle at night or be¬ 
cause they are out of order. 

Third, the period when the means of production have already 
passed into the production sphere but not into the production 
process. For example, the time when raw materials are stored. 

Among these periods, labor time is the most important. Only 
in this period can the worker create value and surplus value. 
Therefore, the capitalist always tries his best to shorten the 
other times in order to make production time approximate labor 
tir.ie and extract more surplus value from a given amount of 



104 Fundamentals of Political Economy 


capital in a given period of time. 

The exchange period of capital includes both the time for the 
transformation of money capital into production capital, that is, 
the time when the capitalist purchases the means of production 
and labor force, and the time for the transformation of commod¬ 
ity capital into money capital, that is, the time when the capital¬ 
ist sells his commodities. 

The length of capital circulation is determined primarily by 
the supply and demand conditions in the market, the distance 
between the point of production and the market, and the condi¬ 
tions of transportation. 

Because of the varying effects of the above factors on differ¬ 
ent production sectors and enterprises, the production period 
and exchange period of capital vary among them so that the 
turnover period of capital is not uniform. 

Because of the differences in the turnover time of capital, the 
speed of turnover also varies (the speed of capital turnover is 
calculated on an annual basis). Suppose the capital of a certain 
capitalist takes one month to be transformed from money to 
production capital and from commodity to money capital and the 
capital production period is three months. Then it takes four 
months for the capital to turn over once. Thus, the capital turns 
over three times a year. Further suppose that the capital of an¬ 
other capitalist turns over once every half a year. Then the an¬ 
nual rate of capital turnover is two. 

From the above analysis, one knows that the rate of capital 
turnover is determined ultimately by the production and circu¬ 
lation periods of capital. 

The Effects of Capital C o mpositi on 
on the Rate of Capital Turnover 

In the above analysis, we assume that every part of the pro¬ 
duction capital is transformed into commodity capital in one 
process. But, in fact, the nature and mode of circulation of the 
various parts of the means of production are all different. From 
this viewpoint, the composition of production capital can be 


Capital Movement and Surplus Value 105 


divided into fixed and working capital. 

Fixed capital refers to capital in the form of plants, ma¬ 
chines, and equipment. It is paid for in one installment. Its ma¬ 
terial forms participate in the production process in its entirety 
and are used more than once. But its value is transferred to the 
new products gradually according to the rate of depreciation. 
Because of the special way in which the value of this capital is 
transferred, we call it fixed capital. For example, if one lathe 
costs 4,000 yuan and lasts for ten years, then every year 400 
yuan of capital value is transferred to the products produced. 
When the products are sold, 400 yuan of capital value returns 
to the hands of the capitalist in the form of annual depreciation. 
The value of this lathe will be completely transferred in ten 
years. 

Working capital refers to that part of the capital which exists 
in the form of raw materials, fuel, and auxiliary materials or 
which is used to purchase labor power. Raw materials, fuel, 
and auxiliary materials lose their material forms in one pro¬ 
duction process, and their values are completely transferred to 
the new products in one process. When the products are sold, 
the total value of this capital returns to the hands of the capital¬ 
ist in the form of money. Therefore, capital used to buy raw 
materials, fuel, and auxiliary materials is called working cap¬ 
ital. That part of the working capital which is used to purchase 
labor power does not have its value transferred to the new prod¬ 
ucts. An equivalent value in the new products is created by the 
new labor of the worker. Although this part of the working cap¬ 
ital used to purchase labor power has this characteristic, its 
mode of value circulation is similar to the working capital used 
to purchase raw materials, fuel, and auxiliary materials. Be¬ 
cause the value produced by the worker in the production pro¬ 
cess which is equivalent to the value of labor power is also 
transferred to the products in one process and returns with the 
sale of products, the capital used to purchase labor power is 
also working capital. 

Now, we know that Marx classified capital into two categories. 
In the chapter on the production of surplus value, we talked about 



106 Fundamentals of Political Economy 


the classification of capital into constant and variable capital 
based on the different roles capital plays in the production of 
surplus value. This classification makes us understand that 
surplus value is produced by variable capital and reveals the 
secret of the capitalist’s exploitation of the worker. In this 
chapter, the classification of capital into fixed and working cap¬ 
ital is based on the nature and mode of turnover of various parts 
of capital. This classification allows us to understand the vari¬ 
ous factors affecting the speed of capital turnover from the 
composition of capital. 

These two classifications of capital can be illustrated as 
follows: 


Role in the pro¬ 
duction of sur¬ 
plus value 


Constant capital 
Variable capital 


Nature and 
mode of 
turnover 


plants, other buildings \ 
machines, equipment > 
raw materials, fuel, 
auxiliary materials 
wages 


Fixed capital 


Working capital 


We mentioned above that the value of fixed capital is trans¬ 
ferred gradually to new products according to its rate of depre¬ 
ciation. This depreciation has direct effects on the size of the 
value of fixed capital being transferred and the speed of turn¬ 
over. To further study the characteristics of fixed capital turn¬ 
over, we must also analyze the depreciation of fixed capital. 

The depreciation of fixed capital can be classified as visible 
or invisible according to the reasons for its occurrence. Visi¬ 
ble depreciation is primarily the result of use in the production 
process and secondarily of the action of natural forces, such as 
the decay of timber and the corrosion of iron. Therefore, this 
depreciation is also called material depreciation. Invisible de¬ 
preciation is due to the improvement in productipn techniques 
which reduces the socially necessary labor time to produce 



Capital Movement and Surplus Value 107 


similar machines and thus reduces the value of the original 
fixed capital. It is also due to the appearance of new and better 
machines, leading to a decrease in the value of the original ma¬ 
chines. The depreciation due to a decrease in the value of the 
original machines is called nonmaterial, or invisible, deprecia¬ 
tion. To avoid such depreciation, the capitalist endeavors to 
lengthen working hours, raise labor intensity, and adopt shifts 
to accelerate the turnover of capital and increase the exploita¬ 
tion of the worker in order to recover the value of fixed capital 
as soon as possible. 

Because of the differences in the speed of turnover between 
fixed and working capital, the speed of capital turnover generally 
refers to the average speed of capital turnover. The general 
turnover speed of capital advanced is determined by the average 
turnover speed of various components of capital. The formula 
to calculate it is to divide the total capital advanced into the to¬ 
tal capital turnover in one year. The following table shows the 
general turnover of capital advanced. All figures are hypotheti¬ 
cal. 


Components 
of production 
capital 

Value 

(yuan) 

Number of 

turnovers 

per year 

Total amount 

of turnover 
per year (yuan) 

Fixed capital 

100,000 

1/10 


Plants 

30,000 



Machines 

60,000 

1/10 


Small tools 

10,000 

3/10 

3,000 

Working capital 

50,000 

4 

200,000 


Total capital 

advanced 150,000 1.4 210,000 


From the above table, we can see that dividing the total cap¬ 
ital advanced, 150,000 yuan, into the total capital turnover, 
210,000 yuan, gives us the turnover speed of the total capital 









108 Fundamentals of Political Economy 


advanced as being equal to 1.4. We can also see that the compo¬ 
sition of production capital has an effect on the speed of capital 
turnover. The turnover speed of fixed capital is low, while that 
of working capital is high. If the share of fixed capital is large, 
the turnover speed of the total capital will be low. On the other 
hand, if the share of working capital is large, then the turnover 
speed of the total capital is high. 

The Capitalist Tries His Best to Acce l erate the Speed 
of Capital Turnover to Extract More Surplus Value 


The speed of capital turnover has a direct bearing on the pro¬ 
duction of surplus value. The acceleration of the speed of capi¬ 
tal turnover not only can reduce the amount of capital advanced, 
but can also accelerate the turnover of variable capital in work¬ 
ing capital so that more surplus value is produced. Suppose two 
capitalists both have 2,000 yuan of variable capital and the rate 
of surplus value is 100 percent for both of them. If the capital 
of A turns over once a month and the capital of B turns over 
once every six months, A can obtain 24,000 yuan of surplus 
value a year, but B can only obtain 4,000 yuan of surplus value 
a year. Even though their rates of surplus value are equal, the 
annual rates of surplus value (the ratio between the surplus 
value produced in one year and the total value of variable cap¬ 
ital advanced in one year) are different: 

Capitalist A's annual rate 9 n 

of surplus value = — = — = 1,200% 

* v 2,000 

Capitalist B’s annual rate 

of surplus value = — = ■ ■ = 200%. 

v 2,000 

Therefore, though the amount of variable capital advanced by 
capitalist A and capitalist B is the same, the speed of capital 
turnover for capitalist A is six times the speed of capital turn¬ 
over for capitalist B. Consequently, the surplus value obtained 
is also six times as great. 



Capital Movement and Surplus Value 109 


The capitalist always tries his best to shorten the turnover 
time of capital, namely, the production time and exchange time, 
to accelerate the turnover of capital and obtain more surplus 
value. To achieve this objective, the capitalist lengthens the 
worker's labor time, raises labor intensity, and improves pro¬ 
duction methods in the production sphere to shorten production 
time. In the exchange sphere, he develops transportation, postal 
and telecommunications services, and improves business orga¬ 
nization to shorten exchange time. However, the inherent con¬ 
tradictions of capitalism hinder the improvement of techniques 
and impose difficulties on the sale of commodities. Therefore, 
the capitalist's attempt to accelerate the turnover of capital is 
not always successful. 

Capit alist Reproduction Is Realized Spontaneously 
amidst Antagonistic Contradictions 


Social Capital Is the Sum of Individual Capital 


There exist numerous capitalist enterprises in the capitalist 
society. Each enterprise's individual capital functions indepen¬ 
dently with respect to other capital to augment value. However, 
this individual capital is not mutually exclusive. It is inter¬ 
related and interdependent because every individual capital 
must be associated with other capital through the exchange pro¬ 
cess in order to augment value. Take the example of a yarn 
mill. It has to be associated with enterprises that supply spin¬ 
ning machines and cotton. On the other hand, it must also be 
associated with enterprises that consume its products, such as 
the weaving enterprises. Therefore, close and mutually depen¬ 
dent associations exist between various enterprises. Through 
these associations, the individual capital forms an organic 
whole. The sum of this associating individual capital constitutes 
the social capital. The sum of the movement of the individual 
capital constitutes the movement of social capital. 

Our earlier analysis of the circulation and turnover of capital 
was conducted from the viewpoint of the reproduction of indi- 




110 Fundamentals of Political Economy 


vidual capital. It dealt primarily with the production and real¬ 
ization of surplus value. We have not analyzed where the capi¬ 
talist sells his commodities, where he purchases his means of 
production, and where the capitalist and the worker purchase 
their means of subsistence. However, when we analyze the re¬ 
production of social capital, things are different. Because the 
social capital already comprises all individual capital, material 
means consumed in its reproduction process can only be re¬ 
plenished from the total social product. Thus, whether the gross 
social product can replenish in kind the various inputs consumed 
in the current production, and if so, how, constitutes an impor¬ 
tant problem concerning how social reproduction proceeds. As 
Lenin pointed out: ’The problem now involves where do the 
worker and the capitalist obtain their consumer goods, where 
does the capitalist obtain his means of production, and how can 
products satisfy these needs and permit expanded reproduction ? 
Here it is not only a question of Value replenishment, but also 
the replenishment of products in kind.”' (2) Therefore, the re¬ 
production of social capital must be examined in terms of re¬ 
plenishment in value as well asinterms of replenishment in kind. 

Marx clearly pointed out that the total social product of cap¬ 
italism can be divided, in value terms, into constant capital (c), 
variable capital (v), and surplus value (m). In material terms, 
it can be classified according to its function in the reproduction 
process into means of production and means of consumption. 

To correspond to the classification of products in kind, Marx 
divided the whole social product into two sectors: the first was 
the production of means of production (I), namely, the production 
of machines, equipment and raw materials; the second was the 
production of means of consumption (II), namely, the production 
of food, clothing and daily commodities. Within each category, 
many production departments were included. 

Necessary Conditions for Simple Reproduction 

To facilitate exposition, we assume that there are only the 
bourgeoisie and the proletariat in the capitalist society. The 




Capital Movement and Surplus Value 111 


production cycle is one year, and the total value of constant cap¬ 
ital is transferred to new products in one production cycle. All 
commodities are sold according to their values, and there is no 
fluctuation in the values and prices of commodities; nor is there 
foreign trade. Under these assumptions, the realization of total 
social product under simple reproduction can be expressed as 
follows: 


I. 4,000 c + 1,000 v + 1,000 m = 6,000 
n. 2,000 c + 500 v + 500 m = 3,000. 

Here we assume that in the first sector the constant capital 
is 4,000, the variable capital 1,000, and the surplus value 1,000. 
The total value of products is 6,000. Its material forms are the 
means of production. In the second sector, the constant capital 
is 2,000, the variable capital 500, and the surplus value 500. 

The total value of products is 3,000. Its materials are means of 
consumption. 

To continue reproduction, the products of both sectors must 
be realized. What is the realization of products ? It is to say 
that things that have been consumed must be replenished in 
value terms and at the same time be replaced in kind. In com¬ 
mon language, it must be possible to sell them and buy them 
back. In the following we will see how the products of these two 
sectors are realized. 

First are the internal exchanges within the first sector. In 
the beginning of the year when the production process starts in 
the first sector, there are means of production valued at 4,000. 
Suppose at the end of the year when the production process is 
completed, all of them have been consumed. In order to carry 
on simple reproduction in the second year, new means of pro¬ 
duction valued at 4,000 must be replenished. Where can the cap¬ 
italist obtain these means of production ? They can only be ob¬ 
tained by exchanging commodities within the sector because 
only the first category produces means of production. For ex¬ 
ample, the capitalist of the machine-building plant buys iron 
and steel from the capitalist of the iron and steel mill, the 



112 Fundamentals of Political Economy 


capitalist of the iron and steel mill buys coking coal from the 
capitalist of the coking plant and machines from the machine- 
building plant.... Thus, through exchanges within the first sec¬ 
tor, 4,000 c can be replenished and exchanged both in value 
terms and in material forms. Just as Marx said, "These ex¬ 
changes are between one type of constant capital and another; 
that is, between one type of means of production and another.'/ (3) 

Next are the internal exchanges within the second sector. In 
the second sector, when the production process is completed at 
the end of the year, the worker receives 500 in wages to be spent 
on personal consumption. The capitalist gets 500 in surplus 
value. Under simple reproduction, there is no capital accumu¬ 
lation. The 500 in surplus value is also spent on means of con¬ 
sumption. Then, where can they buy the means of production 
they want? Only within the second sector because only the sec¬ 
ond sector produces means of consumption. Through internal 
exchanges within the second sector, that part of the product rep¬ 
resenting 500 v and 500 m can be realized in value terms as 
well as in material forms. 

Finally, there are exchanges between the two sectors. After 
the above two types of exchanges, products valued at 1,000 v 
and 1,000 m still remain in the first sector. In the second sec¬ 
tor, products valued at 2,000 c still remain in the second sector. 
These two remaining parts of products cannot be realized within 
their own sectors because the 1,000 v and 1,000 m in the first 
sector, in value terms, should be used for personal consumption 
by the worker and capitalist. However, these products are 
means of consumption, not means of production. In the second 
sector, the 2,000 c in value terms should be used by the capital¬ 
ist to replenish means of production consumed; but these are 
means of consumption, not means of production. How can these 
contradictions be resolved ? They can only be resolved through 
exchanges between the two sectors. The result of these ex¬ 
changes is that the worker and the capitalist in the first sector 
obtain their means of consumption and the capitalist of the sec¬ 
ond sector obtains means of production needed for reproduction 
the next year. The exchanges between these two sectors can be 
illustrated in the following chart: 



Capital Movement and Surplus Value 113 


I. 4,000 c + 1,000 v + 1,000 mj= 6,000 


II. 2,000 c + 500 v + 500 m = 3,000. 


The result of the whole exchange process shows that under 
simple capitalist production there must be a given proportional 
relationship between the two sectors; namely, the sum of vari¬ 
able capital and surplus value of the first sector must be equal 
to the constant capital of the second sector in value terms. In 
other words, I (1,000 v + 1,000 m) must be equal to II 2,000 c 
in the above example. Only by maintaining such a proportional 
relationship can simple capitalist reproduction be carried on. 
Therefore, I (v + m) = II c is the condition for the realization 
of social product under simple capitalist reproduction. 


Necessary Conditions for Expanded Reproduction 


We know that the characteristic of capitalist reproduction is 
expanded reproduction. To carry on expanded reproduction, the 
capitalist cannot consume all his surplus value. He must con¬ 
tinuously convert part of the surplus value into capital to expand 
the scale of production. To do so, the capitalist must use part 
of his newly created capital as constant capital to buy machines 
and raw materials needed for expanded reproduction. The rest 
is converted into variable capital to hire additional workers. 
Therefore, to carry on expanded capitalist reproduction, the 
total annual products of the first sector must have surplus 
means of production in addition to those needed to replenish 
what has been consumed in the first and second sectors during 
the year. This condition can be expressed in terms of an in¬ 
equality: I (c + v + m) > I c + n c. Both sides of the inequality 
contain I c, showing that means of production consumed in the 
first sector can be replenished from within the same sector. 

If we cancel out internal replenishments and concentrate on the 
relationship between the first and the second sectors, the above 
formula can be expressed as I (v + m) > II c. This is to say 
that the variable capital and surplus value of the first sector 



114 Fundamentals of Political Economy 


should be larger than the constant capital of the second sector. 
This is a precondition for expanded capitalist reproduction. 

The following chart is used to show how the social product is 
realized under conditions of expanded capitalist reproduction: 

I. 4,000 c + 1,000 v + 1,000 m = 6,000 
II. 1,500 c + 750 v + 750 m = 3,000. 

The above are hypothetical production figures for the first 
year. They meet the requirement for I (c + v + m) > I c + II c 
or I (v + m) > n c. Now that the capitalist wants to expand re¬ 
production, he cannot spend all the extracted surplus value on 
consumption. Suppose the capitalist in the first sector spends 
half of 1,000 m on personal consumption and converts the other 
half as added capital in the same proportion as the original or¬ 
ganic composition of capital, that is, 4 :1 (4,000 c : 1,000 v). 
The distribution of 1,000 m is as follows: 


1,000 m < 


500 capitalist's personal consumption 
400 c 

500 accumulation < 

100 v. 


We know that the 400 for added constant capital in the first 
sector is spent on means of production. Its material forms are 
also means of production. Therefore, they can be obtained 
through internal exchanges within the first sector. But the 100 
for added variable capital in the first sector is used to hire ad¬ 
ditional workers who will spend it on means of consumption. 
However, its material forms are means of production. There¬ 
fore, it must be exchanged with the second sector to obtain 
means of consumption. 

Because the material forms of the added variable capital 100 
in the first sector are means of production and must be ex¬ 
changed with the second sector for means of consumption, this 
creates conditions for expanded reproduction in the second sec¬ 
tor. But it also requires the second sector to carry on corre¬ 
sponding capital accumulation for expanded reproduction to 



Capital Movement and Surplus Value 115 


meet the increased demand for means of consumption from ex¬ 
panded reproduction in both sectors. Suppose the capitalist of 
the second sector exchanges part of his surplus value (100 m) 
for means of production from the first sector to be converted 
into added constant capital and uses another 50 m as added vari¬ 
able capital in order to conform to the proportion of the original 
organic composition of capital in the second sector, namely 2 :1 
(1,500 c : 750 v). Then 750 m will be distributed as follows: 

600 capitalist’s personal consumption 

750 m < 100 c 

150 capital accumulation < __ 

50 v. 


Through the above capital accumulation, the products of the 
two sectors are rearranged as follows: 

I. (4,000 c + 400 c) + (1,000 v + 100 v) + 500 m = 6,000 
n. (1,500 c + 100 c) + (750 v + 50 v) + 600 m = 3,000. 


Thus, the capital of the two sectors is larger than the original 
capital advanced, and the conditions for expanded scale of pro¬ 
duction in the following years in both sectors are guaranteed. 

Then, under the condition of expanded reproduction, how are 
the products of the two sectors realized? 

Under the condition of expanded reproduction, the realization 
of social production is carried on in three aspects just as in 
simple reproduction: internal exchanges within the first sector, 
internal exchanges within the second sector, and exchanges be¬ 
tween the two sectors. In terms of charts, it is: 


I. (4,000 c + 400 c) + (1,000 v + 100 v) + 500 m = 6,000 

- ^ 

II.[(l,500_c + 100 c)J+ (750 v + 50 v) + 600 m = 3,000. 


Through the above exchanges, the capital of each sector is 
larger than the original capital advanced. The composition of 
capital in the second year is as follows: 



116 Fundamentals of Political Economy 


I. 4,400 c + 1,100 v = 5,500 
II. 1,600 c + 800 v = 2,400. 

If the rate of exploitation stays at 100 percent in this year, 
the production of the two sectors in the second year is: 

I. 4,400 c + 1,100 v + 1,100 m = 6,600 
II. 1,600 c + 800 v + 800 m = 3,200. 

Compared with the first year, expanded reproduction has been 
realized. 

The Contradiction s of Capitalist 
Reproduction Are Antagonistic 


Through the above analysis, we know the necessary conditions 
for the realization of social product under capitalist simple and 
expanded reproduction. But this is not to say that these condi¬ 
tions always exist in the capitalist society. In fact, these condi¬ 
tions are frequently violated in the capitalist society. Just as 
Lenin pointed out: "Abstract theory of realization assumes, and 
should assume, that products are distributed proportionally in 
the various departments of capitalist production. But such an 
assumption does not imply that products are, or can always be, 
distributed proportionally in the capitalist society." (4) This is 
due to the fact that in the capitalist society, means of production 
and products are privately owned by the capitalist and the whole 
social production is governed by competition and chaotic pro¬ 
duction conditions. Thus, the proportional relationship between 
the two sectors and among production departments within each 
of the sectors is frequently violated. Because of the antagonis¬ 
tic contradiction due to the immense increase of productive 
forces in the capitalist society and the relative decrease of ef¬ 
fective demand from the laboring masses, the necessary pro¬ 
portional relationship between the two sectors cannot always be 
maintained. Therefore, capitalist reproduction cannot but en¬ 
counter all sorts of difficulties and obstacles. 



Capital Movement and Surplus Value 117 


There exists a series of antagonistic contradictions in the 
capitalist reproduction process. These contradictions in due 
course inevitably lead to economic crises. 

M ajor Study Re ferences 

Marx, Ca pital , Vol. 2, chaps. 1, 2, 3, 7, 8, 20, 21. 

Lenin, "On the So-called Problem of the Market," Complete 
Wor ks of Lenin , Vol. 1. 

Review Problems 


1. How does the capitalist extract more surplus value through 
the circulation and turnover of capital ? 

2. What are the conditions for the realization of capitalist 
reproduction? Are these conditions always satisfied in the cap¬ 
italist society ? Why ? 


Notes 


1) Marx, Capital , Vol. 2, Compl ete Wor ks of Marx and En¬ 
gels , Vol. 24, p. 174. 

2) "The Development of Russian Capitalism,” Co mplete 
Works of Lenin, Vol. 3, p. 31. 

3) Marx, Capital , Vol. 2, Comple te Works of Marx and En¬ 
gels, Vol. 24, p. 473. 

4) "The Theory of Realization Once Again," Complete Works 

of Lenin, Vol. 4, p. 61. ~~ ' 


The Entire Bourgeoisie Exploits and 
Oppresses the Workers 


The Division of Surplus Value* 


In the capitalist society, the worker is subject to the exploita¬ 
tion and oppression not only of the capitalist of the enterprise 
to which he belongs, but also of the whole bourgeoisie, consist¬ 
ing of the industrial capitalist, the commercial capitalist, the 
banking capitalist, and the landed class. Industrial profit, com¬ 
mercial profit, banking profit, interest, and land rent are all 
extracted from the worker and are all transformed surplus 
value. Then, how do the various exploiting cliques divide up 
surplus value ? And how is surplus value transformed into 
profit, interest, land rent, and other concrete forms? These 
are the problems we will be dealing with in this chapter. 

Competition am o ng the Industrial Capitalists Leads 
to the Equalization of th e Rate of Profit 

Profit Is Transformed Surplus Value 


The insatiable greed for surplus value is the nature of the 
capitalist. What the capitalist exploits is the surplus value cre¬ 
ated by the surplus labor of the worker. But in appearance, it 

*Po-hsueh ho ya-p'o kung-jen ti shih cheng-ke tzu-ch'an 
chieh-chi — sheng-yu chia-chih ti kua-fen. 


118 


Bourgeois Exploitation and Oppression of the Workers 119 


is revealed as the capitalist's profit. What then is the distinc¬ 
tion and connection between profit and surplus value ? 

We know that the capitalist must advance some capital in or¬ 
der to exploit the surplus value created by the worker. Of this 
capital, a part is used to purchase means of production, and the 
rest is used to purchase labor power for the capitalist produc¬ 
tion process. In Chapter 4, we stated that that part of the 
capital used to purchase means of production is constant capital 
whose value remains unchanged in the production process. That 
part of the capital used to purchase labor power is variable cap¬ 
ital which realizes value augmentation in the production process 
and brings surplus value to the capitalist. Hence, surplus value 
is created by the working class and is a product of variable cap¬ 
ital. But when the capitalist computes his rate of profit, he com¬ 
pares the surplus value with the total capital advanced as if sur¬ 
plus value is the product of the total capital advanced. Thus, 
"surplus value, as a conceptual product to recompense total cap¬ 
ital, is transformed into profit." (1) 

Just as surplus value is transformed into profit, the rate of 
surplus value is transformed into the rate of profit. The ratio 
of surplus value to variable capital is the rate of surplus value. 
Its formula is: surplus value/variable capital, or m/v. The ra¬ 
tio of surplus value to total capital is the rate of profit. Its for¬ 
mula is: surplus value/total capital advanced, or m/c + v. 

After surplus value is transformed into profit, the real source 
of surplus value is concealed, as if constant capital can also 
bring surplus value to the capitalist. And after the rate of sur¬ 
plus value is transformed into the rate of profit, the degree of 
exploitation of the worker by the capitalist is concealed. For 
example, a capitalist advances 10,000 yuan as total capital, of 
which 8,000 yuan is constant capital and 2,000 yuan is variable 
capital. Surplus value extracted in one year is 2,000 yuan. The 
rate of surplus value is 2,000/2,000, or 100 percent. But the 
rate of profit is 2,000/8,000 + 2,000, or 20 percent, much lower 
than the rate of surplus value. Therefore, the purpose of the 
capitalist in treating surplus value as the product of the total 
capital advanced is to conceal the real source of surplus value 
and the degree of exploitation of the worker. 



120 Fundamentals of Political Economy 


Competition among Capitalists of 
Various Sectors Equalizes Profit 


To go after profit is the class nature of the capitalist. The in¬ 
tent of the capitalist is always to obtain the maximum amount 
of profit by advancing the smallest amount of capital. The cap¬ 
italists not only cruelly exploit the worker, they also compete 
fiercely among themselves. 

Competition among capitalists is carried on both among en¬ 
terprises in the same sector and among sectors. In the compe¬ 
tition among enterprises in the same sector, those capitalists 
adopting new techniques are in a favorable position. The labor 
productivity of their enterprises is high, and the individual labor 
time is below the socially necessary labor time so that excess 
surplus value is obtained. This excess surplus value is trans¬ 
formed into excess profit which is pocketed by the capitalist 
who adopts new techniques. A different result is obtained in 
competition among sectors. It leads to a uniform rate of profit 
among them. The capitalists of various sectors divide up the 
surplus value created by the worker according to the principle 
of equal profit for equal capital. 

Let us now analyze how competition among the capitalists of 
various sectors leads to a uniform rate of profit. 

In the capitalist society, the rate of profit varies among pro¬ 
duction sectors with their different organic composition of cap¬ 
ital. The organic composition of capital is the ratio of constant 
capital to variable capital, and surplus value is only the result 
of the augmentation of variable capital. Hence, under the condi¬ 
tion of a uniform rate of surplus value, the higher the organic 
composition of capital is, that is, the larger the share of con¬ 
stant capital and the smaller the share of variable capital, the 
smaller the surplus value given an equal amount of advanced 
capital. The rate of profit is also lower. On the other hand, the 
lower the organic composition of capital, the higher the rate of 
profit will be. Suppose shoemaking, spinning and weaving, and 
machine building are the three sectors of society. The organic 
composition of capital is 7: 3 in the shoemaking sector, 8 :2 in 



Bourgeois Exploitation and Oppression of the Workers 121 


the spinning and weaving sector, and 9:1 in the machine-building 
sector. The capital of each of these three sectors is 10,000 (in 
units of thousands of yuan or ten thousands of yuan or any other 
convenient unit), and the rate of surplus value is 100 percent. 

To facilitate analysis, we further assume the rate of capital 
turnover in these three sectors is once a year. The value of 
constant capital is completely transformed in one year to prod¬ 
ucts of that year. Thus, with a 100 percent rate of surplus value, 
the shoemaking sector obtains a profit of 3,000, the spinning and 
weaving sector obtains a profit of 2,000, and the machine- 
building sector obtains a profit of 1,000. The organic composi¬ 
tion of capital is lowest in the shoemaking sector. Its rate of 
profit is 30 percent. The organic composition of capital is high¬ 
est in the machine-building sector. Its rate of profit is the low¬ 
est, only 10 percent. The organic composition of capital in the 
spinning and weaving sector is in the middle with a rate of profit 
of 20 percent. It is lower than that of the shoemaking sector, 
but higher than that of the machine-building sector. 

Such a condition of equal investment with unequal profit can¬ 
not long exist in capitalist society. The capitalist always tries 
to invest capital in the production sector with the highest rate 
of profit. Therefore, the above condition must undergo changes. 
First of all, some capitalists of the machine-building sector 
will withdraw from production and invest their capital in the 
shoemaking sector for a higher rate of profit. Such a transfer 
of capital greatly boosts the output of the shoemaking sector. 

As supply gradually exceeds demand, the price comes down. On 
the other hand, the output of the machine-building sector is grad¬ 
ually reduced. The supply of machines gradually falls short of 
the demand for them, and the price gradually goes up. A combi¬ 
nation of capital transfers and price adjustments leads to a more 
or less uniform rate of profit. This is then the average rate of 
profit. It is the result of comparing the total societal surplus 
value with the total societal capital. If we take the three sectors 
as representing the total societal production, the total societal 
surplus value is 6,000, and the total societal capital is 30,000. 
The average rate of profit is 6,000/30,000 = 20 percent. The 



122 Fundamentals of Political Economy 


profit obtained according to the average rate of profit is called 
the average profit. Marx pointed out, ’The average profit is 
merely the amount of surplus value distributed proportionally 
to each production sector according to its capital share." (2) 

The category of average profit reflects the relationship among 
the capitalists of various sectors in dividing up the surplus 
value created by the working class of society. 

The formation of average profit further conceals the capitalist 
exploitative relationship. The transformation of surplus value 
into profit already confuses the source of surplus value. But the 
profit obtained by the capitalists in various production sectors 
is still equal to the surplus value created by the workers of the 
respective sectors. After the formation of average profit, the 
capitalists of various sectors divide up surplus value so that the 
profit obtained by the various sectors is no longer equal to their 
respective surplus value produced. Now, provided that each sec¬ 
tor possesses an equal amount of capital, an equal amount of 
surplus value can be obtained. The size of profit is entirely de¬ 
termined by the size of the capital advanced. This further ob¬ 
scures the nature of profit and the exploitative relationship it 
reflects. 

The Equaliz ati on of the Rate of Profit Transfo rms 
the Value of Commodities into Production Price 


After the formation of average profit, the capitalist no longer 
sells commodities according to their values, but according to 
their production prices. Production price is equal to cost plus 
average profit. Based on the earlier assumptions, the formation 
process of production price is shown in the following table. 

From the table, we can see that in the machine-building sec¬ 
tor where the organic composition of capital is high, the produc¬ 
tion price of the commodity is higher than its value, while in the 
shoemaking sector where the organic composition of capital is 
lower, the production price is lower than value. Only in the spin¬ 
ning and weaving sector where the organic composition of capi¬ 
tal is in the middle is the production price equal to value. 





Production 

sector 

Constant | 
capital I 
(1) 

Variable 

capital 

(2) 

Surplus 

value 

(3) 

Commodity 
value 
(4) = 

(l)+(2)+(3) 

Average 
profit 
rate {%) 

(S) , 

Average 
profit 
(6) = 

[(1)+(2)]X(5) 

Commodity 
production 
price 
(7) = 

(l)+(2)+(6) 

Production 
price minus 

value 
(8) = 

(7) - (4) 

Shoemaking 

7,000 

3,000 

3,000 

13,000 

20 

2,000 

12,000 

-1,000 

Spinning and 
weaving 

8,000 . 

2,000 

2,000 

12,000 

20 

2,000 

12,000 

0 

Machine 

building 

9,000 i 

1,000 

1,000 

11,000 

20 

2,000 

12,000 

+ 1,000 

Total 

24,000 i 

6,000 

6,000 

36,000 

20 

6,000 

36,000 

0 
























124 Fundamentals of Political Economy 


With the formation of average profit and the transformation 
of value into production price, market price no longer fluctuates 
around value, but around production price. Does the appearance 
of production price mean that the law of value no longer mat¬ 
ters? No. From the viewpoint of the individual capitalists in 
various sectors, some sell their commodities at production 
prices above value and obtain more profit than the surplus 
value created by their sector, while others sell their commodi¬ 
ties at production prices below value and obtain less profit than 
the surplus value created by their sector. However, from the 
viewpoint of the whole society, the total value of commodities 
is equal to the total production price. The total average profit 
obtained by the industrial capitalists as a whole is equal to the 
total surplus value created by the industrial workers as a whole. 
Therefore, production price is merely a transformation of value. 

Marx’s theory about average profit tells us: In capitalist so¬ 
ciety, the worker is subject to the exploitation and oppression 
not only of the capitalist in his own enterprise, but also of the 
industrial capitalists as a whole. 

The Commercial Capitalists Share in th e 
Surplus Value through Commodity Transactions 


The Role of Commercial Capital 
Is to Realize Surplus Value 


In the above analysis, we suppose the surplus value created 
by the working class was monopolized by the industrial capital¬ 
ist. In fact, the industrial capitalist cannot monopolize it. He 
must transfer part of the surplus value extracted from the 
worker to the commercial capitalist. The commercial capitalist 
does not engage in commodity production; he merely advances 
capital to buy commodities in bulk from the industrial capitalist 
and sells them to help the industrial capitalist in realizing sur¬ 
plus value. This surplus value obtained by the commercial cap¬ 
italist is called commercial profit. 

Why does the industrial capitalist need the commercial capi- 







Bourgeois Exploitation and Oppression of the Workers 125 


talist to sell commodities for him, and why is he willing to 
share a part of the surplus value extracted with the commer¬ 
cial capitalist? Because with the development of capitalism, 
the volume of commodities produced by the industrial capitalist 
steadily increases, and the market for commodities steadily 
expands. If the industrial capitalist has to handle the business 
of commodity sales, he must establish a large commercial or¬ 
ganization and hire a large number of shop assistants. This is 
not profitable for the industrial capitalist because a large 
amount of capital would have to be tied down to the exchange 
process, thus adversely affecting his scale of production and 
competitive power. If the sale of commodities is delegated to 
the commercial capitalist specializing in commodity transac¬ 
tions, he can benefit from the advantages of specialization in 
commodity transaction and save on exchange expenses. In addi¬ 
tion, because of the existence of the independent activities of 
commercial capital, the industrial capitalist can sell his com¬ 
modities to the commercial capitalist in bulk and more quickly 
complete the transformation from commodity capital to money 
capital. Consequently, his capital can be active in the produc¬ 
tion sphere and play the role of productive capital longer for 
the extraction of more surplus value. Thus, though a part of 
the surplus value has to be transferred to the commercial cap¬ 
italist, it is still to the advantage of the industrial capitalist af¬ 
ter all. This is why commercial capital is separated from in¬ 
dustrial capital. 

Commercial Capital Also P articipates 
in the Formation of Average Profit 


By helping the industrial capitalist realize surplus value by 
investing in commerce, the commercial capitalist not only re¬ 
quires commercial profit, he also requires that this commer¬ 
cial profit not be lower than the average profit of industrial 
capital. Otherwise, the commercial capitalist would rather in¬ 
vest his capital in the production sector than engage in com¬ 
merce. 



126 Fundamentals of Political Economy 


Where does commercial profit come from? On the sur¬ 
face, it appears that commercial profit is brought about by the 
sale of commodities above their value. The bourgeoisie takes 
advantage of this illusion and says that commercial profit arises 
from exchange. This is a distortion of the source of commer¬ 
cial profit and a concealment of exploitation. 

In fact, commercial profit is also a part of the surplus value 
extracted from the worker by the industrial capitalist. Because 
the industrial capitalist wants the commercial capitalist to sell 
commodities for him, he cannot sell his commodities according 
to their production price, but must sell below production price. 
The commercial capitalist then sells the commodities at pro¬ 
duction price to the consumers. In this way, a part of the sur¬ 
plus value extracted from the worker by the industrial capital¬ 
ist is transferred to the commercial capitalist. 

For example, suppose the industrial capitalist in society in¬ 
vests 40 billion yuan in a year, of which 30 billion yuan is con¬ 
stant capital, 10 billion yuan is variable capital, and 10 billion 
yuan is surplus value. Suppose the production cycle is one year, 
and the value of constant capital is completely transferred to 
products in one year. Then, the total value of commodities, or 
the total production price, is 30 billion yuan + 10 billion yuan + 
10 billion yuan = 50 billion yuan. The rate of profit is 10/40 = 
25 percent. But the circulation of commodities must be handled 
by the commercial capitalist. Suppose the total value of com¬ 
mercial capital is 10 billion yuan. Then the total capital in the 
production and exchange spheres is 50 billion yuan. The 10 bil¬ 
lion yuan of surplus value must be shared equally between the 
50 billion yuan of industrial and commercial capital. The aver¬ 
age profit rate can no longer be 25 percent, but instead is 20 
percent. According to the average profit rate of 20 percent, the 
industrial capitalist obtains 8 billion yuan, and the commercial 
capitalist obtains 2 billion yuan. That the commercial capitalist 
can obtain this 2 billion yuan of profit is because the industrial 
capitalist sells his commodities to the commercial capitalist at 
a price below their production price, that is, at the price of 48 
billion yuan (40 billion yuan in cost and 8 billion yuan in profit). 



Bourgeois Exploitation and Oppression of the Workers 127 


And the commercial capitalist sells the commodities according 
to the production price of 50 billion yuan and obtains a 2 billion 
yuan profit. Thus, the 10 billion yuan of surplus value created 
by the worker is shared proportionally according to the capital 
advanced by the industrial and commercial capitalists respec¬ 
tively. 

The Commercial Capitalist Cruelly 
Exploi ts the Em ployee 

The commercial employee is just like the industrial worker. 
He is a hired laborer and subject to the exploitation of the 
bourgeoisie. The difference between them is that the industrial 
worker produces surplus value in the production sphere for the 
capitalist under his supervision, while the commercial employee 
realizes surplus value for the capitalist in the exchange sphere 
under his supervision. Why do we say the commercial employee 
is subject to exploitation just like the industrial worker ? This 
is because the commercial employee and the industrial worker 
earn their livings by selling labor power. The value of their 
labor power has to be determined by labor time needed to re¬ 
produce labor power. Although the commercial employee does 
not create value or surplus value through his labor connected 
with commodity transactions, the value of commodities and the 
surplus value embodied must be realized through his labor. 
Therefore, the labor time of the employee is also divided into 
necessary labor time and surplus labor time. The part of sur¬ 
plus value realized in the necessary labor time through the 
employee’s sale of commodities goes to compensate the vari¬ 
able capital with which the commercial capitalist buys the labor 
power of the employee. In the surplus labor time, the employee 
works for the commercial capitalist for free in order to enable 
the commercial capitalist to share part of the surplus value from 
the industrial capitalist as commercial profit. Therefore, the 
commercial employee, like the industrial worker, is exploited. 

The exploitation of the employee by the commercial capital¬ 
ist is equally cruel. To obtain more commercial profit, the 



128 Fundamentals of Political Economy 


commercial capitalist raises labor productivity by lengthening 
labor time and increasing labor intensity. He also resorts to 
deducting wages from the employee and other ruthless means 
to intensify exploitation. Take the example of the capitalists in 
the old Shanghai Hsieh-ta-hsiang Silk Goods Company. In order 
to intensify exploitation of the employee, they set down 120 reg¬ 
ulations. The employee was required to work sixteen to seven¬ 
teen hours a day at high labor intensity. There were so many 
deductions from his wages that they were not sufficient for a 
minimum level of subsistence. Under the bloodthirsty extrac¬ 
tions of the capitalist, the broad masses of employees, like the 
multitude of industrial workers, sell not only their labor power 
but also their lives. 

The Financial C apitalists Share in Sur plus Val ue 
through Loans and Borr owings 

The Source of Interest Is Surplus Value 


In the capitalist society, the financial capitalist, in addition 
to the industrial and commercial capitalists, also shares in the 
surplus value. 

There are certain objective necessities for the existence of 
capital loans and borrowings because, in the capitalist repro¬ 
duction process, the capitalist may be short of capital. For ex¬ 
ample, when products have not been sold but machines and raw 
materials have to be bought and wages paid, some money cap¬ 
ital has to be borrowed. Sometimes, there may also be idle 
money capital. For example, before fixed capital is replaced, 
the capitalist may have some accumulated depreciation charges 
in money form. After commodities have been sold but before 
raw materials have been bought and wages paid, there may also 
be some idle money capital. Under these circumstances, those 
capitalists who possess money capital can lend the temporarily 
idle money capital to capitalists in need of money. The capital¬ 
ists who borrow this money capital will use it to ^produce or 
sell commodities to extract or realize surplus value. Naturally, 



Bourgeois Exploitation and Oppression of the Workers 129 


the owners of money capital will not lend it to other capitalists 
without any compensation. They will demand a certain amount 
of money from the borrowing capitalists as compensation for 
the loan. The borrowing capitalist must share a part of the sur¬ 
plus value he extracts with the lending capitalist. This part of 
surplus value is called interest. 

Money capital that is lent for interest is known as loan capi¬ 
tal. The ratio of interest to loan capital is called the rate of in¬ 
terest. The highest level of the interest rate cannot exceed the 
average profit rate. If this is not so, the borrowing capitalists 
will not get any benefit from the loans and will not borrow. The 
source of interest is surplus value. However, the apologists of 
the bourgeoisie advance the false theory that "big money breeds 
little money” and say that "interest comes from money itself" 
to conceal the nature and source of interest and the capitalists' 
exploitative relations. 

Bank Profit Is Obtained from the Difference 
between the B orrowing and Len di ng Intere st 

In the capitalist society, the borrowing and lending of money 
is largely done through the bank. By attracting deposits, the 
bank collects idle capital and funds which the people do not need 
for a period of time. It then lends the money to the functioning 
capitalist. The bank pays interest to attract capital and collects 
interest from loans. The lending interest rate is higher than 
the deposit interest rate. This difference between the borrowing 
and lending interest rates, after subtracting the operating ex¬ 
penses of the bank, constitutes bank profit. Like interest, bank 
profit also comes from the surplus value created by the worker 
in production. The banking capitalist shares in the surplus 
value created by the worker by obtaining the interest differen¬ 
tial through borrowings and loans. 

The purpose of the banking capitalist in advancing capital to 
operate the bank is to obtain profit. Therefore, bank profit can¬ 
not be lower than the average profit obtained by other functional 
capitalists. If bank profit is below average profit, he will not 



130 Fundamentals of Political Economy 


run the bank but will instead run plants and shops himself. 

The Appearanc e of S t ocks Is a Re flection of the 
Intensification of the P ar asitic N ature of Capit alism 

With the development of capitalist production, the scale of 
enterprises expands. The large amount of capital needed to run 
large enterprises cannot be afforded by individual capitalists. 
There arises a need for many individual capitalists to form joint- 
stock corporations. The joint-stock corporation is an enterprise 
with pooled capital. It is an important means which big capital uses 
to control medium and small capital and to manipulate capital. 

The joint-stock company issues stocks, and those who purchase 
the stocks become stockholders. Stockholders have a r ight to share 
part of the enterprise’s profit according to the amount of stock 
owned. Income from stocks is known as dividends. 

The capitalist who owns stocks does not have to work. He can 
loaf all day long and lead an extravagant life on dividends. The 
stockholder may also speculate in stocks. The stock exchange 
is full of dishonest competition. The appearance of people who 
live on interest by clipping interest coupons and speculating in 
stocks reflects the intensification of the parasitic nature of cap¬ 
italism. 


The Landed Class Reaps without Sowing 

Capitalist Monopoly Operation of Land 
Leads to Differential Rent 


Landowners are another exploitative class in the capitalist 
society. They own land and rent it out to the industrial and ag¬ 
ricultural capitalist in order to share in the surplus value. To 
reveal the nature of capitalist rent, we start from the two forms 
of capitalist rent, namely, differential rent and absolute rent. 

Land is the basic means of production for agricultural pro¬ 
duction. But unlike other means of production, its quantity is 
limited. This limited quantity of land includes superior, medium, 







Bourgeois Exploitation and Oppression of the Workers 131 


and inferior land with respect to fertility. In the capitalist so¬ 
ciety, this limited supply of land leads to the capitalist's monop¬ 
olistic operation of land. 

With capitalist monopoly of land, some agricultural capitalists 
operate superior and medium land; other agricultural capitalists 
operate inferior land. Because the produce of the superior and 
medium land cannot fully satisfy the market demand, the price 
of produce must rise in response to the shortage of supply vis- 
a-vis demand. It will continue to rise until the agricultural cap¬ 
italists who operate the inferior land can obtain an average 
profit. Marx pointed out, "The production price from the poor¬ 
est land is always the regulating market price." (3) Thus, those 
agricultural capitalists who operate the superior and medium 
land will obtain excess profit. This excess profit constitutes 
differential rent. 

There are two forms of differential rent. One arises from the 
difference in fertility and location and is known as Differential 
Rent I. The other arises from successive investments on the 
same piece of land and is known as Differential Rent II. 

Let us first take the example of two pieces of crop land of 
equal size but different fertility (see table on next page). 

The capital invested in each of the three pieces of land is 200 
yuan. Suppose the capital is completely transferred to products. 
The cost will be 200 yuan in each case. But labor productivity 
of the agricultural worker is different on land of different fer¬ 
tility. The agricultural output is 4,000 chin , 5,000 chin , and 
6,000 chin respectively. If the average profit is 20 percent, then 
the production price (cost + average profit) of the total output 
for each piece of land is 240 yuan. But because the output is 
different for the different pieces of land, the production price 
of unit output is different. With inferior land, it is 0.060 yuan. 
With medium land, it is 0.048 yuan. And with superior land, it 
is 0.040 yuan. The social production price in the market is de¬ 
termined by the unit production price of inferior land, that is, 
0.060 yuan per chin . Thus, the agricultural capitalist who oper¬ 
ates inferior land obtains 240 yuan. After deducting 200 yuan 
of cost, an average profit of 40 yuan remains. There is no 



132 Fundamentals of Political Economy 


Unit: yuan 


Type 

of 

land 

, 

1 

<0 

<1> 

> 

c 

•H 

r—« 

•»* 

S'— ' 

Uw . 

■*-> 

o 

u 

a 

& 

a 

u 

<D 

r 


Individual 

production 

price 

| 

Social 

production 

price 

i 

j 

►—« 

c 

<D 

73 

i 

c 

0) 

u 

0) 

£ ^ 
<h cr 

Q£ 

s- 

a 

CO 

w ] 

Total output 
(4) = (l)+(2) 

tt 

*. ii 

Is 

| 

as 

-W CO 

I o 3 

73 II 
o — 

H ^ 

Inferior 

200 

40 

4,000 

240 | 

0.060 

0.060 

240 

0 

Medium 

200 

40 

5,000 

240 

0.048 

0.060 

300 

60 

Superior 

200 

40 

6,000 

240 

0.040 

0.060 

360 

120 


excess profit or differential rent. The agriculturalists who op¬ 
erate medium and superior land obtain 300 yuan and 360 yuan 
respectively. After deducting 200 yuan as cost, they get 60 yuan 
and 120 yuan respectively as excess profit in addition to 40 
yuan of average profit. This excess profit constitutes Differen¬ 
tial Rent I. 

Let u s now take the example of continually investing on the 
same piece of crop land to explain the emergence of Differen¬ 
tial Rent II. For example, the agricultural capitalist who oper¬ 
ates inferior land invests successively on the same piece of 
land. He invests 200 yuan the first time. The output of produce 
is 4,000 chin , and the average profit is 40 yuan with no excess 
profit or differential rent. If this capitalist invests another 200 
yuan the second time to construct water control facilities, add 
fertilizers, buy new machines, hire more agricultural workers, 
and increase labor productivity, he may get 5,000 chin more of 
produce (that is, he invests 400 yuan in total and obtains 9,000 
chin ). With an unchanged social production price for produce, 
the total price of the 5,000 chin obtained from the second invest¬ 
ment is 300 yuan. After deducting 200 yuan as cost and 40 yuan 







Bourgeois Exploitation and Oppression of the Workers 133 


as average profit, he still has 60 yuan of excess profit. This 
60 yuan is Differential Rent II. 

We must point out here that the amount of rent was already 
determined when the agricultural capitalist signed a contract 
with the landowner. Therefore, within the current contract, the 
excess profit obtained from successive investment will accrue 
to the agricultural capitalist. But when the contract expires and 
is renegotiated, the landowner may again raise the rent. In the 
end, this excess profit will be transferred to the landowner in 
the form of Differential Rent II. Marx pointed out: "Differential 
rent possesses a certain attribute: the ownership of land merely 
takes away surplus profit. Under a different condition, this sur¬ 
plus profit may be taken away by the tenant. And within the cur¬ 
rency of a contract, it is in fact taken away by the tenant." (4) 
Therefore, the agricultural capitalist always attempts to have 
a longer contract. But the landowner tries his best to shorten 
the duration of a contract. Both sides fight to obtain this excess 
profit. This contradiction between the agricultural capitalist 
and the landowner makes the agricultural capitalist plunder the 
fertility of the land as much as he possibly can before the ex¬ 
piration of a contract. 

Monopol istic Private Landown ership 
Leads to Abs ol ute Rent 

Inferior land does not provide differential rent. But if the 
owner of inferior land does not get any rent, he would prefer 
to let the land remain uncultivated rather than let others use it. 
In fact, the agricultural capitalist who operates inferior land 
must also pay rent to the landowner. This rent arising from the 
monopoly of private landownership is called absolute rent. 

If the agricultural capitalist who operates inferior land must 
also obtain an average profit, where does the rent come from? 

In the capitalist society, agricultural technology is always be¬ 
hind manufacturing technology. The organic composition of cap¬ 
ital in agriculture is always lower than that of manufacturing. 

We know that surplus value comes from variable capital. Since 



134 Fundamentals of Political Economy 


the organic composition of capital is lower in agriculture than 
in manufacturing, an equal amount of capital can bring more 
surplus value in agriculture than in industry. Suppose the aver¬ 
age organic composition of capital in manufacturing is 8: 2 and 
the rate of surplus value is 100 percent. Then, in every 100 
yuan of capital, there is 20 yuan in variable capital bringing 
about 20 yuan in surplus value. The average rate of profit is 
20 percent. The value of commodities and the production price 
are 120 yuan. And suppose the organic composition of capital 
in agriculture is 6 :4 and the rate of surplus value is 100 per¬ 
cent. Then for every 100 yuan, there is 40 yuan in variable cap¬ 
ital bringing about 40 yuan in surplus value. The value of pro¬ 
duce is 140 yuan, and the rate of profit is 40 percent. In the 
capitalist society, agricultural produce can be sold at its value 
(140 yuan). But the agricultural capitalist can only obtain an 
average profit equal to that of the industrial capitalist, namely, 
20 yuan. The production price of produce is therefore 120 yuan. 
Now agricultural produce is sold above its production price. In 
addition to an average profit of 20 yuan, the agricultural capi¬ 
talist still has 20 yuan surplus which is the difference between 
the value of agricultural produce and its production price. This 
constitutes absolute rent. 

Why can agricultural produce be sold above its production 
price ? This is because of the existence of monopolistic private 
landownership. In manufacturing, the organic composition of 
capital in various departments is not all the same. It is natu¬ 
ral for departments with lower organic composition of capital 
to produce more surplus value. But as a result of inter¬ 
departmental competition and the transfer of capital, all indus¬ 
trial capitalists can obtain only an average profit. So industrial 
products can be sold only at their production price. But, agri¬ 
cultural production is different from manufacturing production. 
There is one obstacle in agriculture, namely, monopolistic pri¬ 
vate ownership, which prevents the unconditional transfer of 
capital to agriculture. This prevents the surplus value in the 
agricultural sector from participating in the process of profit 
equalization. And agricultural produce can be sold at a value 



Bourgeois Exploitation and Oppression of the Workers 135 


higher than its production price. 

Therefore, in agriculture, even inferior land can obtain more 
surplus value from an equal amount of capital. This surplus 
value is not shared with manufacturing. It remains in agricul¬ 
ture and is converted into absolute rent for the landowner. 

Capitalist Rent Is Also a Part of Surplus Value 


Although the formation of differential and absolute rent 
arises from different causes, their substance and source are 
the same. As a result of capitalist monopolistic operation of 
land, the price of produce is determined by the production price 
on inferior land. The agricultural capitalist who operates supe¬ 
rior and medium land thus reaps excess profit. This excess 
profit has no connection with private landownership. Even if 
there is no private landownership, the agricultural capitalist 
who operates superior and medium land will still obtain this 
excess profit. Marx pointed out, private landownership "is 
not the cause of this surplus profit, but the cause of its trans¬ 
formation into rent." (5) As a result of the existence of private 
landownership, this excess profit is transformed into differen¬ 
tial rent. Also because of the existence of monopolistic private 
landownership, the price of agricultural produce can be set at 
a value above its production price. Even the agricultural capi¬ 
talist who operates inferior land can obtain excess profit which 
is transformed into absolute rent for the landowner. The source 
of differential rent and absolute rent is excess profit. This ex¬ 
cess profit is created by the agricultural worker, just as is the 
whole surplus value in agriculture. The agricultural capitalist 
rents land from the landowner, buys means of production, hires 
agricultural workers to engage in production, and extracts sur¬ 
plus value from the agricultural workers. From this surplus 
value, the agricultural capitalist obtains an average profit. The 
surplus value over and above the average profit is transformed 
into rent. Therefore, the substance of rent is also surplus value. 

However, the landowner and his spokesman, in order to con¬ 
ceal the exploitation of the agricultural worker by the landowner 



136 Fundamentals of Political Economy 


and the agricultural capitalist, seize upon the superficial differ¬ 
ences between the output of produce from superior and inferior 
land to insist that "rent is brought about by land itself.” This 
explanation is entirely groundless. Good and superior land only 
provide favorable conditions for the increase of labor produc¬ 
tivity and a natural basis for the creation of surplus profit. But 
without the labor of the agricultural worker, even the best land 
cannot create any value. Marx pointed out, "All rent is surplus 
value and is all a product of surplus labor." (6) Marx's theory 
of rent thoroughly exposes the fallacious explanation of the land- 
owner and his spokesman. 

Capitalist rent and feudal rent are a result of private land- 
ownership, but their respective exploitative relations are dif¬ 
ferent. Feudal rent is the total surplus labor or surplus pro¬ 
duce that the feudal landlord obtains from the peasant. Capital¬ 
ist rent is the surplus value over and above an average profit 
obtained by the agricultural capitalist from the agricultural 
worker. Feudal rent manifests the exploitative relation between 
the feudal landlord and the peasant. Capitalist rent manifests 
the exploitative relation between the landowner and the agricul¬ 
tural capitalist on the one hand and the agricultural worker on 
the other. 

Through the above analysis, we can see that in the capitalist 
society the bourgeoisie is divided into different exploitative 
groups. There are the manufacturing, agricultural, commer¬ 
cial, and banking capitalists. The landowner is another exploita¬ 
tive class in the capitalist society. They are all foxes of the 
same ilk sharing among themselves the surplus value created 
by the working class and concertedly exploiting and oppressing 
the working class. Therefore, in the capitalist society, the 
bourgeoisie is on top of the working class. The contradiction 
between the worker and the capitalist is the contradiction be¬ 
tween the whole working class and the whole bourgeoisie. This 
is the basic contradiction of the capitalist society. If the work¬ 
ing class wants to liberate itself, it must unite as a class, take 
up guns to make revolution, overthrow the whole bourgeoisie, 
and destroy the capitalist exploitative relationship. 



Bourgeois Exploitation and Oppression of the Workers 137 


Major Study Refere nces 

Marx, Capital , Vol. 3, chaps. 1, 2, 9, 17, 21, 38. 45. 
Chairman Mao, "The Analysis of Chinese Social Classes." 
Chairman Mao, "The Chinese Revolution and the Chinese Com¬ 
munist Party," chap. 2, sections 2, 4. 

Review Problems 


1. How do the various exploitative groups in the capitalist 
society exploit the surplus value created by the working class ? 

2. What is the significance of Marx’s theory on the division 
of surplus value ? 


Notes 


1) Marx, Capital , Vol. 3, Jen-min ch'u-pan-she, 1966, p. 16. 

2) Ibid., p. 180. 

3) Ibid., p. 772. 

4) Ibid., p. 881. 

5) Ibid., p. 759. 

6) Ibid., p. 744. 



8 

The Incurable Disease of Capitalism 


Economic Crises* 


Economic crises are the natural product of capitalist eco¬ 
nomic development. They are pronounced manifestations of the 
intensification of various contradictions in capitalist production, 
exchange, distribution, and reproduction. How do capitalist eco¬ 
nomic crises arise? What are their effects on capitalist devel¬ 
opment? We will talk about these problems in this chapter. 

Economic Crises Are a Product of the Intensification 
of the B a sic Contr ad ictions in Capitalism 

Capitalis t Economic Crises Ar e 
Crises of Overproduction 


Before capitalism (for example, in the long history of China’s 
feudal society), there were also many social, economic, and 
livelihood crises. Because of the cruel exploitation of the peasant 
by the landlord class, the ravages of war, and natural calami¬ 
ties such as floods, droughts, insect pests, and hailstorms, ag¬ 
ricultural production suffered serious damage, the laboring 
people lost their homes, and hundreds of thousands died of hun- 


*Tzu-pen chu-i chih-tu ti "pu chih chih cheng" — ching-chi 
wei-chi. 


138 



The Incurable Disease of Capitalism 139 


ger and plagues. Social, economic, and livelihood crises at 
those times were characterized by insufficient food grain pro¬ 
duction. Capitalist economic crises are not characterized by 
insufficient production, but by overproduction. The most notable 
features connected with capitalist economic crises are: large 
quantities of commodities cannot be sold, factories close down, 
banks fold up, values of stocks fall, unemployment figures rap¬ 
idly increase, productive forces suffer severe damage, and the 
whole economy is paralyzed and chaotic. 

Capitalist economic crises are crises of overproduction. But 
the so-called "overproduction" is not an absolute overproduction; 
it does not mean that things produced by society are more than 
what the masses can consume. In economic crises, the phenom¬ 
ena described below are widespread. Textile workers receive 
dismissal notices saying that there is an overproduction of 
yarns and fabrics without sales outlets so production has to be 
cut back and workers dismissed. However, the textile workers 
and their families are inadequately clothed. Those who produce 
fabrics cannot afford them. Miners receive dismissal notices 
saying that there is an overproduction of coal necessitating pro¬ 
duction and employment cutbacks. Yet, the miners and their 
families have to shiver in the cold for lack of money to buy 
coal. Therefore, capitalist overproduction is relative over¬ 
production. In other words, social production is excessive only 
in relation to the purchasing power of the masses. During eco¬ 
nomic crises, inventories pile up in the warehouses of the cap¬ 
italist for lack of demand. Commodities may be rotting away 
or even artificially destroyed. On the other hand, the broad la¬ 
boring masses are too poor to afford food and clothing and are 
struggling on the verge of starvation. 

The economic crisis of overproduction is a special feature 
of the capitalist economy. Nevertheless, the possibility of eco¬ 
nomic crises is latent in the development process of the com¬ 
modity economy from the beginning. When the commodity pro¬ 
ducer sells his commodities, he does not always immediately 
use the money obtained to buy means of production or required 
daily commodities. However, if he does not buy, then those 



140 Fundamentals of Political Economy 


commodity producers who trade with him cannot sell. Here 
dislocations between sales and purchases may arise, and the 
possibility of crises exists. However, when commodity produc¬ 
tion was carried on by petty commodity producers and based 
on individual ownership, the purpose of production was to trade 
for other commodities to maintain production and satisfy per¬ 
sonal consumption needs. Therefore, sales were usually fol¬ 
lowed by purchases. At the same time, the productive forces 
were low, and the scale of production small. Society's division 
of labor was not well developed, and production interdependencies 
were not very close. Even if dislocations between sales and 
purchases arose, their effects were local and would not lead to 
economic crises affecting the whole society. Therefore, even 
though commodity production itself embodies the possibility of 
crises, the inevitability of crises can only be found in the cap¬ 
italist economic system itself. 

The Source of Economic Crises Lies in the 
Basic Contradiction of Capitalism 


Economic crises in the capitalist society are inevitable. This 
is determined by the basic contradiction of capitalism. Stalin 
pointed out: "The source and cause of economic crises of over¬ 
production lie in the capitalist system itself. The source of 
crisis lies in the contradiction between the social nature of 
production and the capitalist ownership of products." (1) 

Why does the basic contradiction of capitalism inevitably 
lead to economic crises ? 

First of all, the basic contradiction of capitalism inevitably 
manifests itself in a contradiction in which the productive forces 
greatly increase while the purchasing power of the laboring 
people relatively decreases. Capitalist large-scale social pro¬ 
duction is very different from individual handicraft production. 
Individual production is characterized by simple reproduction. 
Even under very favorable market conditions, its growth in 
production is slow. Capitalist production is production by big 
machines and is capable of rapid growth. The capitalist tries 



The Incurable Disease of Capitalism 141 


his best to expand production in search of more profit because 
the larger the scale of production, the more surplus value he 
can extract. At the same time, the capitalist must also try to 
improve his techniques and expand his scale of production in 
order to avoid being squeezed out by other capitalists. With the 
expansion of production, the standard of consumption must also 
be increased so that the increased production of commodities 
can be sold and social production continued. But under the con¬ 
dition of private ownership of the means of production, the cap¬ 
italist always tries to reduce wages to the lowest possible level. 
The development of capitalist production and the adoption of 
new techniques inevitably keep a large number of workers out¬ 
side the factory gates and expand the ranks of the unemployed. 
Capitalist competition inevitably renders a large number of 
peasants and handicraftsmen bankrupt so that small capital is 
squeezed out or swallowed by big capital. Thus, on the one hand 
there is an immense growth of production, and on the other hand 
there is a relative decrease in the purchasing power of the la¬ 
boring people. This contradiction makes the economic crises 
of overproduction inevitable. 

The basic contradiction of capitalism also inevitably leads to 
economic crises because the contradiction inevitably manifests 
itself in a contradiction in which the production of individual 
factories is organized while social production is chaotic. As 
production becomes social, the relationship and interdependency 
among production sectors and among various enterprises are 
increasingly close. For example, the cotton required by the 
textile mill is supplied by the agricultural sector, and spinning 
and weaving machines by the machine-building industry. There¬ 
fore, in a given period of time, there must be a unified plan and 
arrangement to determine the necessary amount of cotton, cloth, 
and spinning and weaving machines so that social production 
can be smoothly carried out. However, capitalist private own¬ 
ership of the means of production divides the whole society into 
numerous autonomous capitalist enterprises. From the view¬ 
point of one enterprise, its workers are all controlled by one 
capital, and its internal production is organized. But from so- 



142 Fundamentals of Political Economy 


ciety's viewpoint, what and how much the various enterprises 
of different capitalists produce are the private business of in¬ 
dividual capitalists. Nobody else can say anything about it. 
Therefore, the production of the society as a whole is carried 
on under anarchic conditions. Because social production is un¬ 
coordinated, individual capitalists cannot possibly know the ac¬ 
tual demand for a certain commodity. Provided that there is 
profit, capitalists will compete among themselves to expand 
production. At the same time, capitalist commercial activities 
may also create false demand that conceals the society's actual 
purchasing power. Even though production actually exceeds the 
purchasing power of the masses, as long as the market price 
continues to go up, commercial capitalists will still order from 
industrial capitalists, and financial capitalists will still extend 
credit to industrial and commercial capitalists to facilitate in¬ 
dustrial capitalists to expand production, thus creating false 
prosperity in the market. This false prosperity conceals the 
existence and development of overproduction. When over¬ 
production is finally exposed, it is revealed through an ava¬ 
lanche of economic crises. 

Thus we see that the source of economic crises lies in the 
capitalist system itself and in the basic contradiction of capital¬ 
ism in which production is social but means of production are 
privately owned. As long as capitalism exists, economic crises 
are bound to explode. To eliminate crises, the capitalist sys¬ 
tem must first be destroyed. 

Marxist Theory of Economic Cr ises Demolishes 
A ll Fallacious Theories of the Bourgeoisie 
Desi gned to Conceal Crises 

The bourgeoisie and its apologists harbor extreme fear and 
hatred of the scientific conclusions about capitalist economic 
crises reached by Marxism. They have racked their brains to 
fabricate various lies in a vain attempt to dissociate crises 
with the capitalist system in order to deceive the working peo¬ 
ple and maintain the capitalist exploitative system.' For example, 




The Incurable Disease of Capitalism 143 


some of them attribute the source of crises to "underconsump¬ 
tion’' and propose to use "consumption stimulation" to eliminate 
crises. In fact, underconsumption by the laboring people did 
not come into existence after the appearance of capitalism. It 
has been in existence ever since the human society was divided 
into the exploiting and the exploited classes. But overproduction 
appears only in the capitalist society. It is, therefore, easy to 
see that economic crises cannot be explained by "underconsump¬ 
tion." 

After the Second World War, the militarization of the national 
economy led to temporary false prosperity in some capitalist 
countries. The apologists of the bourgeoisie seemed to have a 
lifesaving straw. They made the nonsensical statement that 
"those who hold the view that the capitalist countries would in- * 
evitably run into great economic crises are all mistaken." They 
saw the increasing participation of the governments of capitalist 
states in national economic activities as being "automatic reg¬ 
ulators" which would, to a certain extent, enable the develop¬ 
ment of the capitalist economy to "automatically tend toward 
stability." This is also a lie. We know that the capitalist state 
machinery serves the bourgeoisie. Whatever the bourgeois 
state does to militarize the national economy or to regulate 
economic life, it does through various measures in order to in¬ 
tensify the exploitation of the people so that the capitalist can 
get richer. As Lenin pointed out long ago: "Whether in the 
United States or Germany, the result of 'regulating economic 
life' is to create military hard-labor camps for the worker 
(and part of the peasantry) and to build havens for the banker 
and the capitalist. The regulating measures of these countries 
consist in tightening the belt of the worker to the verge of star¬ 
vation while on the other hand guaranteeing (using secret and 
reactionary bureaucratic methods) that capitalist profit is 
higher than before the war." (2) The regulation of economic 
life in the bourgeois countries has not only not made the capi¬ 
talist economy "automatically tend toward stability," on the 
contrary, it has impoverished the laboring people and dimin¬ 
ished the market while enriching the capitalists. The basic 



144 Fundamentals of Political Economy 


contradiction of capitalism has steadily intensified, and the 
economic crises of capitalism have become more serious. 

The Worsening Tendency of Capitalist Economic Cr i ses 
Capitalist Economic Crises Explode Periodically 

As long as the capitalist system exists, the basic contradic¬ 
tion of capitalism will play its role. Capitalist economic crises 
are not problems which break out once or twice, but inevitably 
appear periodically. Looking at history, we see that the first 
large-scale economic crisis appeared in 1825 in England. After 
that, economic crises appeared repeatedly in 1836, 1847, 1857, 
and 1867. They occurred on the average of once every ten 
years. After these, they continued to explode with ever greater 
severity. 

The cycle of economic crisis is the period of time between 
two successive crises. It consists in general of the four phases 
of crisis, depression, recovery, and boom. Of these, the phase 
of crisis is basic. It is the end of the last cycle and the begin¬ 
ning of a new cycle. 

The Crisis Phase: Crises often strike suddenly. Before 
their arrival, there is widespread false prosperity in the mar¬ 
ket, and "business is thriving" in various industries. Although 
production already exceeds actual needs, plants are still work¬ 
ing at full speed to fill up the warehouses and meet orders be¬ 
cause of the credit system and active speculative activities. 

All of a sudden, an economic crisis arrives due to a dislocation 
in one of the links in the capitalist economy. Once over¬ 
production in one field is revealed and sales become difficult, 
other fields are soon affected, leading to a chain reaction. For 
example, production cuts or suspension in the automobile in¬ 
dustry due to overproduction inevitably affect the coal, electric 
power, and transportation industries. Commercial speculators 
who initially help boost the false prosperity now turn around to 
unload their stocks at reduced prices, thus worsening the situ¬ 
ation. Now the warehouses are overstocked, sales are difficult, 



The Incurable Disease of Capitalism 145 


and prices drop rapidly. To arrest the drop of prices, the cap¬ 
italist may even resort to destroying large quantities of com¬ 
modities. Under the blow of slow sales and falling prices, many 
medium and small enterprises go bankrupt en masse, and many 
banks close down. Those plants which continue to operate re¬ 
duce their scale of production. At this time, the number of un¬ 
employed workers from all industries rapidly increases, and 
the whole economic situation rapidly worsens. 

The Depression Phase: After the stormy assaults in the cri¬ 
sis phase, the tide of insolvency among industrial and commer¬ 
cial enterprises subsides. Those enterprises which survive the 
crisis conduct their activities on a smaller scale. Although 
shops are brightly decorated and their salesmen shout loudly, 
business is still very poor. A large number of workers are 
still unemployed with no means of livelihood. Capitalist indus¬ 
try, commerce, and banking are in the doldrums. However, in 
this phase, social consumption is still carried on. Stockpiles 
of commodities, after much damage, are sold slowly at very 
low prices. Under the surface of the doldrums, factors promot¬ 
ing the recovery of production slowly accumulate. 

The Recovery Phase: With the reduction in stockpiles, prices 
slowly recover, and profits increase gradually. The capitalists 
step up their exploitation of the worker on the one hand and im¬ 
prove techniques and purchase new equipment on the other. 
Thus, production in the first category such as electric power, 
iron and steel, and machine building is the first to expand step 
by step. Employment gradually increases in this category. And 
the increase in employment leads to an increase in demand for 
consumer goods, thus stimulating the development of production 
in the second category. In this way, production gradually re¬ 
covers, and the number of unemployed decreases. The once 
depressed capitalist economy is again gradually on its way to 
recovery. 

The Boom Phase: The basic characteristics of this phase 
are rapid sales of commodities in the market, high profit, 
quickening activities in production and exchange, and the re¬ 
vival of credit and speculative activities. There is widespread 



146 Fundamentals of Political Economy 


"prosperity" in the market. The capitalists all try hard to ex¬ 
pand production. Thus, under the surface of widespread "pros¬ 
perity," new factors for another crisis steadily accumulate. 
Engels described this lively phenomenon of the capitalist econ¬ 
omy as: ,T Motion is quickened; slow steps turn into quick steps. 
Industrial quick steps turn into running steps. Running steps in 
turn become a sprint in a handicapped race in industry, com¬ 
merce, credit, and speculative activities. In the end, after sev¬ 
eral final, desperate jumps, it falls into an abyss of collapse." (3) 

Crisis — depression — recovery — boom — crisis character¬ 
izes the cyclical nature of economic crises. It also manifests 
the cyclical nature of capitalist production. It shows that cap¬ 
italist production cannot progress continuously, but can only 
advance on a zigzag course. 

Capitalist Economic Crises Worsen Steadily 

In the development process of capitalist production, economic 
crises repeatedly appear. But each crisis is not a simple re¬ 
currence of the previous crisis. Capitalist economic crises 
tend to worsen steadily. Especially after the Second World War, 
economic crises have become more frequent and more severe. 
This is manifest in the following aspects: 

First, the cycle of economic crises has shortened, and eco¬ 
nomic crises are becoming more frequent. 

Before the Second World War, economic crises occurred 
once every ten years. In the twenty-odd years after the Second 
World War, the cycle of economic crisis shortened markedly. 

We can clearly see from the following tables that after the 
Second World War there were five economic crises in the 
United States and Japan. The average time between the first 
and the fifth crisis was less than five years in the United States 
and less than four years in Japan. After the Second World War, 
the cycle of economic crises markedly shortened because, un¬ 
der the rule of monopoly capital, the laboring people are sub¬ 
ject to increasing exploitation, their purchasing power is re¬ 
duced relatively, and problems of the domestic market are in- 



The Incurable Disease of Capitalism 147 


tensified. Furthermore, because of the external aggression and 
expansion of various imperialist countries, the contradictions 
between imperialism and the people of colonies and satellite 
countries are intensified. This promotes national revolutions 
in the colonies and satellite countries and consequently reduces 
the size of the foreign markets. Sales become a chronic prob¬ 
lem. Thus, the contradiction between production and consump¬ 
tion is steadily intensified. All these show that the basic con¬ 
tradictions of capitalism are becoming ever more acute, and 
the capitalist production relation imposes an ever more serious 
obstacle to the development of the productive forces. 

Second, the blind replacement of fixed capital makes the ratio 
of capitalist reproduction more out of balance. Before the Sec¬ 
ond World War, whenever economic crises exploded, investment 
in fixed capital usually dropped rapidly. However, after the Sec¬ 
ond World War, investment in fixed capital was generally higher 
than before the war. Even during crises, the level of invest¬ 
ment still remained relatively high. In the fifth economic crisis 
in the United States after the war, investment in fixed capital 
not only did not fall, it went up instead. There was an increase 
of 3.5 percent between 1969 and 1970. In the fifth economic cri¬ 
sis in Japan after the war, investment in fixed capital in 1971 
was 3.2 percent higher than in 1970. 

The higher level of investment in fixed capital after the war 
shows that, on the one hand, the monopoly bourgeoisie uses the 
state machinery to increase its exploitation of the laboring 
people and transforms the surplus value extracted from the 
worker into capital. This speeds up capital accumulation but 
also speeds up the impoverishment of the proletariat and fur¬ 
ther reduces the purchasing power of the people. On the other 
hand, it shows that investment in fixed capital in the United 
States after the war consisted primarily of military orders and 
demands related to armaments and war preparations. Not only 
was a large amount of social resources wasted, but also the 
first category of industries was expanded without any control. 
As a result, the ratio of social reproduction was even more 
out of balance, and the contradiction of capitalist reproduction 



Postwar Economic Crises — The United States 




Manufacturing output 


Highest 

unemployment 

(10,000 

persons) 

Number of 
bankruptcies 
during manu - 
facturing 
production 
reduction 
(units) 

Crisis 

period 

Highest 

before 

crisis 

Lowest 

during 

crisis 

Reduction 

(percent) 

Months 

of 

reduction 

First 

1948-49 

August 

1948 

July 

1949 

8.6 

11 

410 

9,246 

Second 

1953-54 

July 

1953 

April 

1954 

9.9 

9 

370 

7,724 

Third 

1957-58 

March 

1957 

April 

1958 

14.8 

13 

520 

15,579 

Fourth 

1960-61 

January 

1960 

January 

1961 

7.5 

12 

571 

15,668 

Fifth 

1969-70 

September 

1969 

November 

1970 

8.1 

14 

550 

13,629 













Postwar Economic Crises — Japan 




Manufacturing output 


Highest 

unemployment 

(10,000 

persons) 

Number of 
bankruptcies 
during manu - 
facturing 
production 
reduction 
(units) 

Crisis 

period 

Highest 

before 

crisis 

Lowest 

during 

crisis 

Reduction 

(percent) 

Months 

of 

reduction 

First 

1953-54 

December 

1953 

August 

1954 

5.0 

8 

68 

565 

Second 

1957-58 

July 

1957 

June 

1958 

10.7 

11 

92 

1,565 

Third 

1962 

January 

1962 

December 

1962 

2.7 

11 

62 

1,653 

Fourth 

1964-65 

December 

1964 

May 

1965 

2.0 

5 

54 

2,464 

Fifth 

1970-71 

July 

1970 

May 

1971 

5.7 

10 

80 

8,427 







150 Fundamentals of Political Economy 


became more acute. And capitalist economic crises became 
more frequent and more severe. 

Third, manufacturing crises are interwoven and interact 
with agricultural crises, intensifying the whole economic crisis. 
Under the capitalist system, economic crises occur not only in 
manufacturing but also in agriculture. When agricultural cri¬ 
ses explode, they are reflected in rapidly increasing stocks in 
the warehouse of the agricultural capitalist, falling wholesale 
prices, shrinking cultivated acreage, increasing unemployment 
of agricultural workers, falling wages among those still em¬ 
ployed, and mass bankruptcy among individual farmers. It can 
be seen that agricultural crises, like manufacturing crises, 
arise because of overproduction and are caused by the basic 
contradiction of capitalism. As long as the capitalist system 
exists, agricultural overproduction crises are just as inevitable 
as manufacturing overproduction crises. 

But, compared with manufacturing crises, agricultural crises 
last much longer. In the twenty-three years since the agricul¬ 
tural crisis exploded with the manufacturing crisis in 1948, ag¬ 
riculture has never been able to free itself from overproduction. 

The intertwining and interaction between industrial and agri¬ 
cultural crises has become a serious problem in the postwar 
United States economy. Manufacturing crises lead to insolvency 
in a large number of enterprises, production cutbacks, unem¬ 
ployment, and falling wages. As a result, demand for agricul¬ 
tural products is reduced, aggravating the crisis of agricultural 
overproduction. At the same time, agricultural crises also 
damage agricultural production and impoverish agricultural 
laborers. Consequently, demand for agricultural means of pro¬ 
duction and manufacturing products is reduced and crises of 
manufacturing overproduction are intensified. Under the influ¬ 
ence of manufacturing and agricultural crises, capitalist eco¬ 
nomic crises inevitably worsen. 

Fourth, the crisis of capitalist overproduction is interwoven 
with the fiscal and financial crisis. After the Second World 
War, at the same time when the cycle of capitalist economic 
crises shortened, the explosion of fiscal and financial crises 



The Incurable Disease of Capitalism 151 


became more frequent. Fiscal and financial crises often occur 
along with economic crises. Fiscal and financial crises, like 
economic crises, are an inevitable result of a further intensifi¬ 
cation of the basic contradiction of capitalism. Their major 
features are: budgetary deficits, indiscriminate expansion of 
money supply, rising prices, balance-of-payments deficits, 
dwindling gold reserves, and currency devaluation. 

After the Second World War, in order to free themselves of 
the worsening economic crises, the imperialist powers vainly 
attempted to resort to armament and war preparations to stim¬ 
ulate national economic growth. However, military expenses 
and production expenses of the defense industry rose steadily, 
leading to chronic budget deficits. To pay for the hugh defense 
expenses, imperialist countries have tried hard to increase 
taxation, negotiate foreign loans, issue currency, and engineer 
inflation, leading to fiscal crises. From the fiscal year 1946 
to 1971, the United States budget deficits amounted to 137.9 
billion dollars. The public debt reached 424.1 billion dollars. 
Even United States government officials claimed in dismay that 
the ,T United States public debt was larger than those of all other 
countries combined." 'Tf we converted these public debts into 
United States one dollar notes, they could form a belt 35 feet 
wide encircling the equator 1,520 times." 

As inflation worsens, the value of money falls steadily, lead¬ 
ing to ever-rising prices. In the past, before the explosion 
of an economic crisis, in general the price level would fall. 

But since the Second World War, the capitalist countries have 
been bent on adopting the militarization of the national economy 
and have pursued a policy of inflation. As a result, prices not 
only have not fallen during crises, but have gone up instead. 

For example, there have been five economic crises in the United 
States since the Second World War. With the exception of the 
crisis in the 1948-49 period, prices in the other four periods 
all rose. This indicated that purchasing power fell. The de¬ 
valuation of a currency inside a country inevitably affects its 
external credit standing. United States imperialism launched 
successive aggressive wars. With large increases in the army 



152 Fundamentals of Political Economy 


stationed overseas and in military expenditures, the huge out¬ 
flow of United States dollars sent its international credit stand¬ 
ing plummeting. Since the Second World War, financial crises 
have occurred repeatedly in the financial market of the capital¬ 
ist world. Massive sales of United States dollars and rushes 
for gold have forced the United States government to devaluate 
the dollar twice: once at the end of 1971 and again in February 
1973. The hegemony of the United States dollar in the capitalist 
world has disintegrated. 

The concurrence of economic and financial crises has bogged 
down the capitalist economy in a deep quagmire. On the one 
hand, economic crises have led to a plunge in production and a 
steady impoverishment of the laboring people and have reduced 
the revenues of the capitalist countries, resulting in large defi¬ 
cits in federal budgets and in balance-of-payments which aggra¬ 
vate fiscal and financial crises. On the other hand, with the 
fiscal and financial crises worsening, inflation, higher taxation, 
falling real wages, and relative reduction in the purchasing 
power of the masses have inevitably further aggravated the 
economic crises of overproduction. 

We can thus see that the cyclical nature of capitalist eco¬ 
nomic crises forms a vicious circle which gets worse and 
worse. The inherent antagonistic contradiction in capital¬ 
ism is further intensified. Crises on top of crises have 
shaken the whole capitalist world like so many wild rain¬ 
storms. 


Eco n omic Crises Undermine the Basis 
of Capitalist Rule 

Economic crises further intensify the basic contradiction of 
capitalism. During crises, competition among capitalists be¬ 
comes more acute. Many medium and small enterprises, un¬ 
able to compete with big enterprises, are the first to go bank¬ 
rupt. To pay off their debts, many medium and small enter¬ 
prises are forced to be auctioned off at losses. A few big en¬ 
terprises which are more competitive take the opportunity to 
buy in at low prices. Therefore, after each crisis in the capi- 



The Incurable Disease of Capitalism 153 


talist society, capital becomes more concentrated in the hands 
of a few capitalists. Concentration of production and capital is 
hastened. The increasing concentration of production and cap¬ 
ital implies that the basic contradiction of capitalism, namely, 
the contradiction between social production and capitalist pri¬ 
vate ownership, is becoming more acute. 

Economic crises intensify class contradictions in the capital¬ 
ist society. To reduce their own losses during crises, the cap¬ 
italists inevitably take the knife to the laboring people. They 
dismiss workers en masse, cut wages, resort to inflation, in¬ 
crease taxation, and try their best to shift the burden of the cri¬ 
ses onto the shoulders of the laboring people. At the same time, 
during crises, the exploitation of agriculture by capitalist man¬ 
ufacturing and of the rural areas by the urban areas also in¬ 
creases, resulting in mass bankruptcy among the peasants. 
Therefore, capitalist economic crises inflict severe hardship 
on the working class and other laboring people and intensify the 
contradiction between the workers and peasants on the one hand 
and the bourgeoisie and big landowners on the other, causing 
the proletariat's tide of struggle against the bourgeoisie to get 
higher and higher. Thus, the foundation of capitalist rule is 
continually rocked. 

Economic crises fully expose the transitory nature of the 
capitalist system, revealing the existence of antagonistic con¬ 
tradictions between capitalist production relations and produc¬ 
tive forces. The capitalist production relation is too confining 
for the huge social productive forces. It severely restricts the 
development of productive forces. During crises, only after 
immense destruction of productive forces and drastic reduc¬ 
tions in production can the contradiction between production 
and consumption be temporarily and forcibly resolved. But at 
the same time, factors leading to another crisis are gradually 
accumulating. In the development process of the capitalist 
economy, there is a tendency for economic crises to get worse. 
This indicates that the capitalist production relation is decaying 
and must be replaced by another, new production relation which 
can adapt to the developmental needs of new productive forces, 
namely, the socialist production relation. 



154 Fundamentals of Political Economy 


Major Study Ref e rences 

Engels, Anti-Duhring , pt. 3, chap. 2. 

Lenin, "The Lessons of Crises,” Compl ete Works of Lenin, 
Vol. 5. 

Re view Problems 

1. What is the source of capitalist economic crisis ? 

2. Why do we say that economic crises hasten the downfall 
of capitalism ? 


Notes 

1) ’Tolitical Report to the Sixteenth Congress of the Central 
Committee of the Communist Party of the Soviet Union (Bolshe¬ 
vik)," Complete Works of Stali n, Vol. 12, p. 214. 

2) "Where Is the Way Out in the Face of an Impending Ca¬ 
tastrophe?," Complete Works of Lenin , Vol. 25, p. 324. 

3) Engels, Anti-Duhring , Se lected Works of Marx and Engels, 
Vol. 3, Jen-min ch’u-pan-she, 1972, p. 316. 




9 

The Unchanging Nature of Imperialism 


Imperialism Is Monopoly Capitalism* 


Before the 1870s, capitalism was in a stage of free competi¬ 
tion. From the 1870s onward, free competition steadily devel¬ 
oped into monopoly. At the end of the nineteenth century and in 
the beginning of the twentieth century, capitalism completed its 
transition from free competition to monopoly and developed into 
imperialism. Lenin gave a complete and precise definition to 
imperialism: 'Imperialism is a special stage of capitalism. 
This special nature is manifested in three ways: (1) imperial¬ 
ism is monopoly capitalism; (2) imperialism is parasitic and 
decaying capitalism; and (3) imperialism is moribund capital¬ 
ism.” (1) This chapter first deals with the basic attributes of 
imperialism as monopoly capitalism. 

Lenin pointed out that there are five basic characteristics in 
the economic aspect of imperialism. They are: "(1) production 
and capital concentration have been developed to such an extent 
that economic life is dominated by the monopoly organization; 
(2) banking capital and manufacturing capital have merged, and 
a financial oligarchy has emerged on the basis of this 'financial 
capital'; (3) capital export, as distinct from commodity export, 
assumes special significance; (4) an international monopoly 

*Ti-kuo-chu-i ti pen-hsing shih pu hui kai-pien ti — ti-kuo- 
chu-i shih lung-tuan ti tzu-pen-chu-i. 


155 



156 Fundamentals of Political Economy 


alliance has been formed; and (5) the most powerful capitalist 
powers have dismembered the territories of the world." (2) 
Lenin’s theory concerning imperialism is our telescope and 
microscope for understanding the reactionary nature of im¬ 
perialism. 


M onopoly Is the Deep-rooted E con omic 
Basis of Imperialism 


Mo nopoly Is an Inevitable 
Devel opment of Capitali sm 


The transition from free competition to monopoly is the most 
marked economic phenomenon in the development of capitalism 
into imperialism. Other characteristics of imperialism are all 
related to monopoly and developed on the basis of monopoly. 
Therefore, imperialism is often known as monopoly capitalism. 
The birth of monopoly capitalism passed through three basic 
stages. 

In the first stage in the 1860s and 1870s, free competition in 
capitalism reached its zenith of development. In manufacturing, 
the electric motor, the internal combustion engine, and a new 
steel-refining method were invented. The development of pro¬ 
ductive forces shifted the relative share of light and heavy in¬ 
dustry in favor of heavy industry. With the development of heavy 
industry characterized by a higher organic composition of cap¬ 
ital, concentration of capital was accelerated. Monopoly orga¬ 
nizations began to emerge. 

In the second stage after the explosion in 1873 of the most 
severe economic crisis in the nineteenth century, competition 
among enterprises became more acute. Many medium and 
small enterprises closed down, making way for the extensive 
development of monopoly organizations. In the United States, 
in 1879 Rockefeller set up the first trust (the Standard Oil 
Company). In 1880, the total production of anthracite coal was 
monopolized by seven companies. However, monopoly was still 





The Unchanging Nature of Imperialism 157 


not in a dominant position. Most monopoly agreements were 
short-term and unstable. In the last thirty years of the nine¬ 
teenth century, the steam turbine, the automobile, and the die¬ 
sel locomotive were invented one after another. Productive 
forces were highly developed. The relative share of heavy in¬ 
dustry was further increased. Conditions for a transition to the 
monopoly stage were basically completed. 

In the third stage at the end of the nineteenth century and the 
beginning of the twentieth century, the accumulation and concen¬ 
tration of capital greatly accelerated. More and more capital 
was concentrated in the hands of big enterprises. Monopoly or¬ 
ganizations rapidly developed to gain control over various ma¬ 
jor manufacturing sectors and formed the basis of all economic 
life. In the beginning of the twentieth century, United States 
monopoly organizations controlled 70 percent of the metallurgi¬ 
cal industry, 66 percent of the iron and steel industry, 81 per¬ 
cent of the chemical industry, 85 percent of the aluminum pro¬ 
duction, 80 percent of the tobacco and sugar refining industries, 
and 95 percent of coal and oil production. From this time on, 
free competition capitalism grew into monopoly capitalism, and 
capitalism was transformed into imperialism. Hence, Lenin 
said, ’’Monopoly is the deep-rooted basis of imperialism.’’ (3) 

The transition from free competition capitalism to imperial¬ 
ism has not changed the fundamental nature of capitalism. Its 
economic basis is still capitalist private ownership of the 
means of production. Its class contradiction is still the contra¬ 
diction between the proletariat and the bourgeoisie. Long¬ 
standing economic laws such as competition and chaotic pro¬ 
duction are still playing their active roles. Chairman Mao 
pointed out: "When the free competition stage in capitalism has 
developed into imperialism, the fundamental contradictions be¬ 
tween the proletariat and the bourgeoisie, as well as the nature 
of the capitalist society, have not changed.” (4) In the imperial¬ 
ist stage, some new features emerged, intensifying and magni¬ 
fying the existing contradictions of capitalism. 



158 Fundamentals of Political Economy 


Monopoly Organization Guarantees the 
Extraction of High Monopoly Profits 


Monopoly organization is either the largest capitalist enter¬ 
prise or an alliance of capitalist enterprises. They control the 
production and distribution of certain products and set monopoly 
prices by virtue of their monopoly position in order to extract 
high monopoly profits. The economic pulses of capitalist coun¬ 
tries are under their manipulation. 

Monopoly organizations assume many forms: some are 
"short-term price agreements" in which various enterprises 
collude to fix prices; some are "cartels” in which the enter¬ 
prises are independent in production but have agreements con¬ 
cerning how to share the market, set up quotas, and fix prices; 
some are "syndicates" in which the enterprises are independent 
in production but cooperate in purchasing inputs and selling fi¬ 
nal products; others are "trusts" in which the enterprises pro¬ 
ducing identical goods merge; and some are "consortia" which 
consist of enterprises of different trades (manufacturing and 
mining, trading companies, transport and shipping companies, 
as well as banks). The development of monopoly organizations 
of various kinds gradually controls all economic sectors and 
the economic pulses of capitalist countries. Especially since 
the end of the Second World War, social production and social 
wealth have been increasingly concentrated in the hands of a 
few monopoly capitalists. This is manifested by: 

1) A continuous expansion in the size of enterprises and in¬ 
creasing monopolization. Take the United States as an example. 
There was only one company with capital assets exceeding one 
billion dollars in 1901. In 1960, this had increased to 96 com¬ 
panies. In 1970, it had again increased to 282 companies. 

2) Increasing control of industrial fields by a few monopoly 
capitalists. In many industrial fields, a few big companies con¬ 
trol a major share of the production or even the whole produc¬ 
tion. In the United States, in 1969 the big automobile companies 
monopolized 78.1 percent of the nation's total automobile pro¬ 
duction. In England, in 1970 one iron and steel company monop- 


The Unchanging Nature of Imperialism 159 


olized 93 percent of the steel output. In Japan, in 1970 seven 
big monopoly organizations controlled 95.5 percent of the total 
shipbuilding tonnages of the country. In France, in 1968 one 
electric power company controlled the electric power genera¬ 
tion for the whole country. 

3) Increasing concentration and monopolization of agricul¬ 
tural production. In 1939, there were 6.097 million farms in 
the United States. In 1959, this was reduced to 3.701 million. 

In 1971, only 2.800 million were left. An average of 90,000 
farms went bankrupt each year. In fact, in the United States 
fewer than 50,000 big monopoly farms, or 2 percent of all the 
farms, produce and market more than 80 percent of the total 
United States agricultural produce. 

4) Increasing diversification of the monopoly organization. 

In the past, many companies produced only one or two products. 
But by the end of the 1960s, their operations extended to many 
areas. For example, the United States International Telephone 
and Telegraph Company was established in 1920. During the 
first forty years, its primary business was to manufacture tele¬ 
communications equipment. But during the last decade, it has 
purchased 50 companies unrelated to telecommunications equip¬ 
ment. Its operations have extended to bread, artificial fibers, 
construction, hotels, and insurance. It controls 150 companies 
all over the world, and its distribution networks have spread 
over more than 100 countries and regions. 

Though there are differences among various forms of mo¬ 
nopoly organization and further changes may develop, their na¬ 
ture is identical. They all seek to guarantee high monopoly 
profit to the monopoly capitalist by monopolizing production 
and markets. 

High monopoly profit is profit well in excess of average 
profit which is obtained by the monopoly capitalist through his 
monopoly position. Where does high monopoly profit come 
from ? It still comes from the surplus value created by the 
worker in the monopoly enterprise. The monopoly organization 
adopts various blood and sweat labor systems to increase labor 
intensity and exploit the worker. In addition, the monopoly cap- 



160 Fundamentals of Political Economy 


italist also transfers part of the income of the worker and other 
people into his own hands by raising prices of consumer goods. 
Taking advantage of his monopoly position, the capitalist de¬ 
presses the purchasing price of agricultural produce and raises 
the selling price of manufactured products to extract part of 
the value created by the peasant. Through monopoly pricing, he 
grabs part of the profit of the capitalists outside the monopoly 
organization. By nonequivalent exchanges, the monopoly capi¬ 
talist plunders the people of colonies, satellites, and other 
countries. This shows that what the monopoly organization 
gains in the form of high monopoly profit is exactly what the 
worker, the small producer, and the people of colonies and sat¬ 
ellites lose. A small part is extracted from nonmonopoly me¬ 
dium and small capitalists. From the viewpoint of the capitalist 
world as a whole, therefore, monopoly pricing has not changed 
the sum of the value nor the surplus value created in the capi¬ 
talist world. In other words, monopoly pricing has operated 
within the sphere of the law of value; it has merely changed the 
form in which the law manifests itself. Similarly, the law of 
surplus value, the fundamental economic law of capitalism, is 
still functioning in the monopoly stage; only its effects and 
forms have changed. Prior to the monopoly stage, it was mani¬ 
fested through the average profit; in the monopoly stage, it is 
manifested through high profit. 

The rising of monopoly profits implies that the working class 
and the laboring people are subject to increasingly heavier ex¬ 
ploitation and that the exploitative measures of the monopoly 
capitalists have become more ruthless than ever before. 
From 1940 to 1949, the United States monopoly companies 
obtained an average of 24.356 billion dollars of high monopoly 
profit every year. From 1960 to 1969, this increased to 67.47 
billion dollars. In Japan, the rate of surplus value in manufac¬ 
turing amounted to 182 percent in 1930; it increased to 313 per¬ 
cent in 1954 and 345 percent in 1960. From these two sets of 
figures, we can see the acute polarization between the rich and 
the poor in the capitalist country. 



The Unchanging Nature of Imperialism 161 


Monopoly Lead s to More Intense Compe tition 

Free competition leads to monopoly. But monopoly cannot 
eliminate competition. On the contrary, it intensifies competi¬ 
tion because competition is a product of capitalist private 
ownership. Monopoly has not changed the nature of capitalist 
private ownership and therefore cannot eliminate competition. 
This is especially true because means of production are in¬ 
creasingly concentrated in the hands of a few oligopolists. In 
order to eliminate their opponents, the monopoly organizations 
resort to any conceivable means to discourage their competi¬ 
tors. Competition becomes more acute and cruel. In the impe¬ 
rialist stage, life and death struggles among capitalists and 
capitalist cliques are manifested in the following ways: 

Competition between monopoly organizations and nonmonopoly 
organizations. Under capitalist conditions, no matter how con¬ 
centrated production is, it is impossible to achieve absolute 
monopoly. A certain number of nonmonopoly organizations al¬ 
ways exists. Even in countries where monopoly capitalism is 
most developed, a large number of medium and small enter¬ 
prises still exists. For example, in the United States, of her 
4 million manufacturing enterprises, medium and small enter¬ 
prises account for more than 3 million. Life and death strug¬ 
gles between monopoly and nonmonopoly enterprises are in¬ 
evitable. 

Intense competition also exists among monopoly organizations 
in their fight for sources of raw materials, markets, and trans¬ 
portation facilities. 

There also exists among various enterprises in the same 
monopoly organization competition for markets and higher pro¬ 
duction and sales quotas. This kind of competition may even 
lead to the disintegration of some monopoly organizations and 
results in new monopoly organizations and new competition. 

In trusts and consortia, the struggle among various big capi¬ 
talists for leadership, stock control, and share of profits never 
ceases. 

Therefore, monopoly capitalism is not "organized capitalism" 



162 Fundamentals of Political Economy 


as the bourgeoisie and the revisionists claim. On the contrary, 
monopoly intensifies competition and aggravates the capitalist 
contradiction between social production and private ownership 
and between the organized production of individual enterprises 
and the chaotic conditions of social production. Lenin pointed 
out long ago, "Monopoly arising from free competition cannot 
eliminate competition. It is superimposed on competition and 
coexists with competition, consequently leading to many very 
acute contradictions, frictions, and confrontations." (5) "The 
combination of the two contradicting ’principles’ of competition 
and monopoly represents the true nature of capitalism. It is 
exactly this combination that leads to disintegration, namely 
socialist revolution.*’ (6) 

Financial Capital Is an Omnipotent Monopolist 

Financial Capital Is Formed by a Merger of 
Banking Capital and Manufacturing Capital 

The first economic attribute of imperialism is monopoly. 

The second is the formation of financial capital and the rule of 
financial oligopoly. With the emergence of monopoly in manu¬ 
facturing, monopoly also appears in the banking industry. When 
free competition is dominant, the bank serves as a middleman. 
It pools idle funds in society for the use of manufacturing and 
commercial capitalists through short-term loans. With the ar¬ 
rival of the imperialist stage, the bank is transformed from a 
middleman into an all-powerful monopolist. Monopoly in the 
banking industry leads to a fundamental change in the relation 
between the bank and the manufacturing industry. Big banks in¬ 
filtrate the manufacturing industry by purchasing manufacturing 
stocks. Manufacturing monopoly organizations infiltrate the 
banks by purchasing banking stocks. As a result, monopoly 
banking capital and monopoly manufacturing capital gradually 
merge to form financial capital. ’The concentration of capital; 
the development of monopoly from concentration; the merger 
between the banks and the manufacturing industry or their 






The Unchanging Nature of Imperialism 163 


mixed growth — these are the origins of financial capital and 
the content of this concept." (7) "The characteristic of impe¬ 
rialism is not manufacturing capital, but financial capital." (8) 
The few largest capitalists who control a large amount of finan¬ 
cial capital are the financial oligopolists. The chief means by 
which financial capital controls the national economy is the 
"participation system." Through a major joint-stock company 
("mother company") which the financial capitalist controls, 
stocks of other joint-stock companies are purchased. Once 
their stocks are under control, they become "son companies." 
These "son companies" use the same method to control more 
"grandson companies." In this way, a relatively small amount 
of capital can control and manipulate capital many times the 
amount of the original capital. The national economy and most 
of the wealth created by the laboring people are thus under the 
control of a few financial oligopolists. In 1968, eighteen finan¬ 
cial groups in the United States controlled capital assets worth 
678.4 billion dollars. Of these, the Morgan and Rockefeller 
groups were the two biggest monopoly financial organizations. 
They had the most economic power and their influence covered 
the whole capitalist world. As of 1970, these two financial 
groups controlled capital assets totaling 330.4 billion dollars, 
representing about half of the capital assets controlled by the 
eighteen United States financial monopoly organizations and 
exceeding all the capital assets controlled by the financial mo¬ 
nopoly organizations of England, France, Japan, and West Ger¬ 
many combined. Enterprises controlled by the Morgan group 
covered various departments of the national economy, espe¬ 
cially basic industries such as iron and steel, electricity and 
gas, electronics, and chemicals. In public utilities and trans¬ 
portation, the Morgan group T s position was even stronger, play¬ 
ing a vital role in the United States economy. Enterprises con¬ 
trolled by the Rockefeller group were more concentrated. Its 
five major oil companies controlled 94.1 percent of the oil ex¬ 
traction in the United States in 1967. The two groups exercise 
a decisive influence in the United States economy. 



164 Fundamentals of Political Economy 


Financial Ca pital Di rectly Controls Sta te 
Political Power and Other Superstructures 

Lenin pointed out, ’'Once monopoly is formed, controlling 
vast amounts of capital, it inevitably infiltrates into various 
aspects of society’s life.” (9) To further exploit and oppress 
the laboring people for high monopoly profit, financial capital 
seeks control not only of the economic lifeblood of the state 
but also of state political power. Financial oligopolists bribe 
high-level officials and state legislators to serve as their 
spokesmen for the control of the state machinery. Sometimes 
they personally occupy the leadership positions of the state. 

Take the postwar Eisenhower administration as an example. 
Eisenhower came into power with the support of the Rockefeller 
and Morgan groups. Of the 272 high-level officials in his admin¬ 
istration, 150 were big capitalists. Among them, Secretary of 
State Dulles was a trustee of the Rockefeller Foundation, De¬ 
fense Secretary Wilson was a general manager of the General 
Motors Company, Gates, another defense secretary, was an im¬ 
portant person in the Morgan group and served as the director 
of the Morgan Guaranty Trust Company in 1965, and Secretary 
of the Treasury Humphrey was a responsible official of the 
Han-na Mining Company which was a major enterprise of the 
Cleveland group. The financial oligopoly controlled not only 
state political power but also various spheres of the super¬ 
structure. The newspaper, publishing, broadcasting, television, 
and movie industries were all under the control of monopoly 
capital and financial oligopoly. The Rockefeller group also 
owned the largest ’’philanthropic enterprises,” various founda¬ 
tions, learned societies, museums, hospitals, ’’welfare organi¬ 
zations,” and "cultural” centers. These were all tools used by 
the Rockefeller financial group to expand into various aspects 
of social life. 

St ate Monopoly Capitalism Pushes the Re latio n 
between Capital and Labor to the Ultimate 


Engels once prophesied that when capitalism develops to a 






The Unchanging Nature of Imperialism 165 


certain stage, "the real agent of the capitalist society, the state, 
must take the responsibility for managing production." ( 10) In 
the imperialist stage when the productive forces have been 
greatly developed, some monopoly capital groups are shown to 
be increasingly incapable of controlling the productive forces. 
Consequently, the phenomenon arises in which "the state merges 
ever closer with the alliance of capitalists which possesses 
enormous power. Its scandalous oppression of the laboring peo¬ 
ple becomes more severe." (11) This is state monopoly capital¬ 
ism. State monopoly capitalism is monopoly capitalism based 
on capitalist ownership and the merger of monopoly capital 
with state political power. 

The rapid development of state monopoly capitalism is a 
prominent feature of contemporary imperialism. Since the Sec¬ 
ond World War, imperialist countries have implemented so- 
called "nationalization" by having the state purchase private 
enterprises; or the state has invested directly in so-called 
"state enterprises." These state monopoly capitalist enter¬ 
prises constitute a very high proportion of capitalist enter¬ 
prises. In 1968, the share of state monopoly capitalist enter¬ 
prises in four major countries in Western Europe was as fol¬ 
lows: 


Countries 

Percentage share 
in staff and 

workers 

Percentage share 
in assets 

France 

11.2 

33.5 

West Germany 

8.7 

22.7 

Italy 

11.6 

28 

United Kingdom 

8.5 

17 


The development of United States state monopoly capitalism 
had its own characteristics. During the Second World War, the 
United States government established a large number of "state 
enterprises." After the war, they were sold to the monopoly 




166 Fundamentals of Political Economy 


capital groups at very low prices. At the same time, the United 
States government adopted the "blood transfusion" technique of 
supporting the monopoly capital groups by means of taxes ex¬ 
tracted from the people. 

The services rendered by the imperialist countries to the 
monopoly bourgeoisie, in addition to "nationalization" and 
"state enterprises," assumed the following forms, assuring 
the monopoly groups high monopoly profits: (1) Using federal 
treasury funds and the people's taxes to subsidize the capital¬ 
ists when they undertook the risks of investment; (2) redistrib¬ 
uting a large part of the national income in favor of the monop¬ 
oly capital organization through state legislation and budgets; 

(3) creating facilities conducive to the monopoly capitalist's 
concentration and accumulation of capital and to his absorption 
of medium and small enterprises; and (4) though the means by 
which the imperialist countries serve their monopoly bour¬ 
geoisie are different, their objective is always the same, 
namely, the strengthening of the capitalist enslavement of the 
proletariat. "The more of the productive forces which the 
bourgeois state takes into its possession, the more it becomes 
a truly total capitalist, and the more it exploits the people. The 
worker is still a hired laborer and a proletarian. The capital¬ 
ist relation has not only not been eliminated, it has been ele¬ 
vated to its ultimate." (12) 

Contrary to the claims of the bourgeois apologists and the 
modern revisionists, state monopoly capitalism does not have 
any "socialist element" which can exercise planned leadership 
over the national economy. On the contrary, state monopoly 
capitalism has not changed the capitalist nature of production 
relations a bit. It is merely a tool of the imperialist countries 
to serve the monopoly organization and strengthen the rule of 
the financial oligopoly. State monopoly capitalism strengthens 
the exploitation of the working class and the laboring people by 
monopoly capital, strengthens the plunder of the people of the 
colonies by monopoly capital, accelerates armament and war 
preparations, and intensifies competition and chaos so that the 
inherent contradiction in the capitalist society becomes more 



The Unchanging Nature of Imperialism 167 


acute. It runs into increasing opposition from the proletariat 
and the broad laboring people and, at the same time, goes a 
step further in preparing the material conditions for the pro¬ 
letarian revolution. 

Ca pital Export Leads to World Domination 
by Financial Capital 

Ca pital Ex port Is an In dication o f 
Relative Capital Surplus 


"The characteristic of the old capitalism in which free com¬ 
petition was dominant is commodity export. The characteristic 
of the newest capitalism in which monopoly is dominant is cap¬ 
ital export." (13 ) Capital export exists in the premonopoly stage 
of capitalism; but it is widespread and significant only in the 
stage of monopoly capitalism. This is because the cruel exploi¬ 
tation of the domestic laboring people by the monopoly organi¬ 
zation in the imperialist countries helps accumulate a large 
amount of capital. However, since almost all profitable busi¬ 
ness has already been monopolized inside the country and high 
monopoly profit cannot be guaranteed in other, less developed, 
domestic sectors, a large amount of accumulated capital thus 
becomes "surplus capital." Where can profitable outlets be 
found for this "surplus capital"? In those developing countries 
where capital is scarce, wages are low, land and raw materials 
are cheap, and high profit can be obtained. Therefore, capital 
is exported for high monopoly profits through direct investment 
(mining, manufacturing, railroads, shops) and indirect invest¬ 
ment (loans), greedily exploiting the broad laboring people of 
the developing countries. Capital export has developed rapidly 
only since the beginning of the twentieth century. In 1970, the 
total capital export from major capitalist countries reached 
more than 300 billion dollars, an increase of more than five 
times over that of 1914. 



168 Fundamentals of Political Economy 


Cap ital Export Is an I mp eriali st Tool to Explo it 
and Oppress the People of Various Countries 


In the search for monopoly profits and external expansion, 
capital export is an important tool used by the monopoly capital¬ 
ist to exploit and plunder the people of various countries, espe¬ 
cially the peoples of the developing Asian, African, and Latin 
American countries. Take old China as an example. On the eve 
of the Anti-Japanese War, foreign capital in China totaled 4.3 
billion dollars. Near the end of the war, it increased to 9.8 bil¬ 
lion dollars, of which, the share of investment by Japanese im¬ 
perialism was the highest, amounting to 6 billion dollars. This 
foreign capital controlled 70 percent of China's modern industry 
and transportation, 95 percent of the iron and steel and petro¬ 
leum industries, 75 percent of the electric power and coal in¬ 
dustry. More than half of the food processing industry was op¬ 
erated by foreign capital. In 1945, after imperialist Japan sur¬ 
rendered, United States imperialism replaced Japanese imperi¬ 
alism as the dominant power in China. In 1948, the American 
imperialist investment in China (including so-called "United 
States aid") represented 80 percent of foreign investment in 
China. The invasion of foreign capitalism "not only played a 
role in undermining China's feudal economic basis, but also 
created certain objective conditions and possibilities for the 
development of capitalist production in China." (14) However, 
"the purpose of the imperialist powers in invading China was 
definitely not to transform feudal China into a capitalist China. 
Their purpose was just the opposite. They wanted to transform 
China into their semicolony or colony." (15) The influx of a 
large amount of foreign capital on a long-term basis seriously 
undermined the social productive forces of China and brought 
extreme poverty to the livelihood of the Chinese people, reduc¬ 
ing China to a semicolonial and semifeudal status. 

After the Second World War, there was a large increase of 
capital export from the capitalist countries, and the United 
States became the largest capital-exporting country. In 1914, 
the United States exported only 3.5 billion dollars of capital. 



The Unchanging Nature of Imperialism 169 


In 1970, it rapidly rose to 155.5 billion dollars, an increase of 
more than forty-three times in fifty-six years. With the rapid 
increase in capital export, there were also large increases in 
the high monopoly profits of the monopoly capitalists. From 
1950 to 1970, the profit from United States private direct invest¬ 
ment in foreign countries amounted to 88.77 billion dollars, or 
14 percent higher than the total United States private direct in¬ 
vestment in foreign countries up to the end of 1970. Profit from 
investments made by imperialism in Asia, Africa, and Latin 
America was astonishingly high. For example, in 1970 United 
States direct investment in Asia, Africa, and Latin America ac¬ 
counted for 27.3 percent of her total foreign direct investment. 
In the same year, profit extracted from Asia, Africa, and Latin 
America accounted for 43.5 percent of the total profit from all 
foreign direct investment. At the present time, imperialism has 
become the greediest bloodsucker of the people over a large 
area of the world. 

After the Second World War, in addition to further developing 
private capital export, the imperialist countries paid increasing 
attention to state capital export. The major form of this state 
capital export was foreign "aid.” From mid-1945 to mid-1971, 
the total amount of United States foreign aid reached 149.6 bil¬ 
lion dollars. This foreign "aid” was classified into so-called 
"grants” and "loans.” "Grants" were nominally free; but in 
fact, they were the strings by which the grantee countries were 
controlled. Chairman Mao long ago exposed the reactionary po¬ 
litical objective of United States imperialist "aid": "Gifts, yes; 
but with conditions. What conditions? You have to follow my 
footsteps." (16 ) In recent years, the proportion of loans from 
the imperialist countries is increasing, and the proportion of 
"grants" is correspondingly decreasing. These so-called loans 
all have interest rates exceeding 5 percent per annum. The 
highest rate reached 8 percent per annum. In addition, many 
political, economic, and military strings are attached. It is not 
only a bloodsucking straw but is also an important tool for the 
implementation of the aggressive and expansionary policies of 
imperialism and the fight for world hegemony. 



170 Fundamentals of Political Economy 


Capital export from the imperialist countries inflicts severe 
hardships on the colonial and semicolonial countries and their 
people. However, the imperialists and revisionists try their 
best to defend these aggressive acts. They claim that capital 
export can "help” the economically underdeveloped countries 
to reach economic prosperity. The Soviet revisionist renegades 
even unabashedly suggested that imperialism could spend all the 
money saved through total disarmament to ”help" the economi¬ 
cally underdeveloped countries in Asia, Africa, and Latin Amer¬ 
ica create a new era. All nations and people of the world who 
have been subject to exploitation and slavery have had their full 
share of the hardship brought about by the so-called ’’aid” of 
imperialism. The market is shrinking for such arguments of 
the Soviet revisionist renegades. 

The International Monopoly Alliance Carved up 
the World Economically 


The International Mono po ly Alliance 
Is a Supermonopoly 

The monopoly organizations of a country first carve up the 
domestic market. Under capitalism, the domestic market is 
closely related to the foreign market. With increasing capital 
export and the expansion of the international association and the 
sphere of influence of the largest monopoly alliance, a few large 
monopoly organizations of several countries can control most 
of the world’s production and distribution of some commodities. 
These large monopoly organizations are comparable in power 
and may, out of self-interest and under certain conditions, make 
temporary international agreements and form alliances to set 
international monopoly prices, divide up sources of raw mate¬ 
rials and distribution markets, limit production quotas, and thus 
form an international monopoly organization. These monopoly 
organizations have already exceeded the boundary of one coun¬ 
try. Lenin called them ’’supermonopolies." 

These super monopoly organizations appeared as early as the 



The Unchanging Nature of Imperialism 171 


1870s and developed rapidly in the twentieth century. After the 
Second World War, new international monopoly organizations 
were formed, and some old international monopoly organizations 
disintegrated. According to statistics, up to 1968 the total for¬ 
eign capital assets (accounting value) of international monopoly 
companies amounted to 94 billion dollars. The annual production 
value of their foreign subsidiary companies was 240 billion dol¬ 
lars . The five largest international monopoly organizations 
were: the General Motors Company, the New Jersey Standard 
Oil Company, the Ford Motor Company, the British-Dutch 
Shell Oil Company, and the General Electric Company. As a 
result of the rapid development of international monopoly com¬ 
panies, the monopoly financial groups’ monopoly of world pro¬ 
duction and trade is strengthened. Some manufacturing fields 
in the capitalist world such as rubber tires, oil, tobacco, phar¬ 
maceuticals, and automobiles are almost completely controlled 
by international monopoly organizations. In recent years, there 
have been new developments in regional international monopoly 
alliances. The Common Market and the European Free Trade 
Area of Western Europe are, economically speaking, regional 
international monopoly alliances of sorts. Their development 
and expansion provide checks and balances to the vain attempts 
of the United States and the Soviet Union to divide up the world. 

The Struggle among International 
Monopoly Alliances Is Intensifying 

In the imperialist stage, the enormous development of monop¬ 
oly organizations requires more supplies of resources and mar¬ 
kets for commodities and more areas for capital investment. 
Take 1969 for instance: the proportion of raw materials which 
the United States imported from Asia, Africa, and Latin America 
was as follows: tin ore, close to 100 percent; manganese ore, 

91.9 percent; copper ore, 78.2 percent; petroleum, 62.9 percent; 
chromium and others, 41.6 percent. The proportion of raw 
material imports by Japan, West Germany, and the United King¬ 
dom from Asia, Africa, and Latin America was also high. The 




172 Fundamentals of Political Economy 


struggle for sources of raw material supply among international 
monopoly organizations, therefore, has become increasingly se¬ 
vere. To fight for oil in the Middle East, the monopoly capital¬ 
ists of many countries tried very hard to get into this area, and 
consequently, the struggle was especially acute and complex. 

The struggle among the monopoly organizations of various 
countries for markets to sell commodities is also very acute. 
After the Second World War, the United States dominated the 
capitalist world market for some time. Her total volume of ex¬ 
ports accounted for one-third of the total capitalist world ex¬ 
ports. But with the rising economic power of Western Europe 
and Japan, the United States hegemony began to decline. In 
1971, her share of the capitalist world exports was reduced to 
only 14.2 percent. In Asia, Africa, and Latin America, the mo¬ 
nopoly organizations of Western Europe, North America, and 
Australasia repeatedly engaged in intense struggle for markets. 
Faced with the influx of Japanese automobiles on the West Coast 
of the United States, Henry Ford II, the president of the Ford 
Motor Company, lamented: "This is only the beginning. These 
Japanese will soon invade the heart of America.'’ Lenin pointed 
out profoundly: "The dismembering of the world among the cap¬ 
italists is not due to their specific vicious character. Rather, 
it occurs because concentration has reached such a stage that 
they cannot but take this path to obtain profit." (17) 

The international monopoly alliance is originally an interna¬ 
tional monopoly organization set up by the monopoly capitalists 
of various countries to divide up the world market for high mo¬ 
nopoly profits. But agreements and alliances among the monop¬ 
oly capitalists of various countries to divide up the world are 
at best temporary and relative. Their pursuit of high monopoly 
profits guarantees that the struggle among them will go on for - 
ever. Imperialism and revisionism hold that the international¬ 
ization of capital will bring the possibility of peace to nations. 
This wishful thinking has been sharply criticized by Lenin. 

Lenin pointed out: ’The form of struggle among international 
monopoly organizations may change frequently for various com¬ 
paratively local and temporary reasons. But the nature of the 



The Unchanging Nature of Imperialism 173 


struggle and the class content of the struggle will never change 
as long as classes exist.” (18) The history of the last half- 
century or so has fully confirmed Lenin's scientific judgment. 

Competition among the Imperialist Powers for the 
Division and Redivision of the World 


Colonies Are Important Conditions 
for the Existence of Imperialism 


In the imperialist era, the economic division of the world by 
monopoly capital must inevitably be followed by the territorial 
division of the world into colonies. The implementation of the 
colonial policy and the seizure of colonies began in the stage of 
primitive accumulation. But only in the imperialist stage is the 
"climax” of struggle for colonies begun, and the struggle to di¬ 
vide the world’s territories among imperialist countries inten¬ 
sified. This is because: 

First, colonies are the most important source of raw mate¬ 
rials for imperialism. Monopoly leads to large-scale produc¬ 
tion. The larger the scale of production, the more raw materi¬ 
als are needed, and the more important it is to control the 
sources of raw materials. Lenin pointed out, "The more ad¬ 
vanced capitalism is, the scarcer raw materials are, and the 
more acute the struggle for the world’s sources of raw mate¬ 
rials becomes, the more intense the struggle to colonize is.” (19) 

Second, colonies are the most profitable outlets for the cap¬ 
ital exports of imperialism. In colonies, the monopoly organi¬ 
zations of the suzerain can exploit and enslave the laboring peo¬ 
ple more ruthlessly. They can more easily eliminate competi¬ 
tors through monopolistic means and guarantee high monopoly 
profits for the exported capital. 

Third, colonies are the most profitable sales market for the 
monopoly organizations. The suzerain can use protective tar¬ 
iffs to guarantee their monopolist position. 

Fourth, colonies are also military strategic bases in the 
struggle for world hegemony among imperialist countries. 



174 Fundamentals of Political Economy 


The suzerain can establish a large number of military bases 
there, plunder large quantities of strategic materials, and re¬ 
cruit large numbers of soldiers to serve the military policies 
of imperialism. 

In sum, colonies are important conditions for the existence 
of imperialism. ’’Only by occupying colonies can the triumph 
of the monopoly organization be fully secured.” (20) Therefore, 
the imperialist countries are always fighting for more colonies. 
After the 1870s, the struggle to divide the world's territories 
among the imperialist powers reached an extremely acute de¬ 
gree. Up to 1914, the colonies occupied by England, Russia, 
France, Germany, the United States, and Japan reached 65 mil¬ 
lion square kilometers, and they ruled 523 million people. 
Among them, the area of the colonies owned by the czar of Rus¬ 
sia was second only to that of England. At that time, out of Rus¬ 
sia’s 22.8 million square kilometers, 17.4 million square kilo¬ 
meters were colonies. Lenin pointed out clearly, ’The czarist 
government expressed more vividly than other national govern¬ 
ments the reactionary nature of war, plundering, and enslaving 
peoples." ( 21) Czarist Russia was the "prison of various na¬ 
tionals." (22) 

China had long been fiercely carved up by the imperialist 
powers. From the latter part of the nineteenth century, the im¬ 
perialist countries who invaded China marked out their respec¬ 
tive spheres of influence according to their economic and mili¬ 
tary power in China and reduced her to a semicolony. For ex¬ 
ample, the provinces in the middle and lower reaches of the 
Yangtze River were under British influence; Yunnan, Kwang- 
tung, and Kwangsi provinces were under French influence. Af¬ 
ter the Russo-Japanese War in 1905, the southern part of north¬ 
east China was brought under Japanese influence. In the pro¬ 
cess of imperialism's slaughter of China, czarist Russia was 
the first "to stretch out her grisly hands." (23) The old czar 
invaded China 'like a thief" ( 24) and occupied more than 1.5 
million square kilometers of Chinese territory, equal to three 
times the area of France or twelve times that of Czecho¬ 
slovakia. 



The Unchanging Nature of Imperialism 175 


The Division and Redivision of Colonies 
Inevitably Leads to Wars 

To obtain high monopoly profits, imperialism must engage in 
aggression and expansion and fight for the division and redivi¬ 
sion of world territories. The outcome of such competition is 
determined by the relative strength of the imperialist countries. 
The mightiest holds world hegemony. The highest form of re¬ 
solving conflicts through strength is war. As long as imperial¬ 
ism exists, wars are inevitable. Imperialism fights for colo¬ 
nies and world hegemony and obtains high monopoly profits 
through wars. Lenin pointed out, "Modern wars are created by 
imperialism." (25) The two world wars in the first half of the 
twentieth century were caused by the division and redivision of 
the world and the struggle for world hegemony among the impe¬ 
rialist powers. 

Economic monopoly inevitably intensified the fundamental 
contradictions of imperialism and accentuated the political and 
economic crises of capitalism. To free themselves from polit¬ 
ical and economic crises, to reduce domestic class contradic¬ 
tions, and to save the capitalist system, the imperialist powers 
ran the risk of wars, engaging in moribund struggles. Chair¬ 
man Mao pointed out, "The outbreak of imperialist world wars 
was an attempt by the imperialist countries to extricate them¬ 
selves from new economic and political crises." (26) 

Once we understand the economic reality of imperialism, we 
will understand Lenin’s famous statement that "on the economic 
basis of private ownership of means of production, imperialist 
wars are inevitable.” (27) United States imperialism prospered 
through wars. In the two world wars, the United States monop¬ 
oly organization engaged in large-scale rearmament transac¬ 
tions and obtained windfall gains from wars. In the First World 
War, United States monopoly capitalists obtained 38 billion dol¬ 
lars as windfall profit; in the Second World War, they obtained 
117 billion dollars as windfall profit and became the dominant 
power in the capitalist world. From then on, the United States 
monopoly bourgeoisie looked all the more to wars as shortcuts 



176 Fundamentals of Political Economy 


to prosperity and continuously waged aggressive wars. Accord¬ 
ing to statistics, in the aggressive war in Korea, United States 
monopoly capital obtained 115.4 billion dollars as a windfall 
profit; in the aggressive war in Vietnam, in 1964 and 1965 alone, 
the windfall profit amounted to 76 billion dollars. Every dollar 
in the pocket of the United States millionaires is stained with 
the blood of the laboring people. As long as imperialism exists, 
the source of modern wars exists. To eliminate wars, we must 
eliminate the imperialist system. 

However, the imperialist and revisionist always fabricate all 
sorts of nonsense to deceive the people in order to protect the 
imperialist system. A typical absurdity is found in On Super- 
i mperialism , a work which the chief of the Second International, 
Kautsky, fabricated on the eve of the First World War. Pur- 
posedly overlooking the fact that the external expansion and 
aggression of imperialism are determined by the substance of 
monopoly capitalism, he vigorously contended that those were 
the imperialists' conscious policies. Hence, he alleged: "These 
policies of neosuperimperialism would replace international fi¬ 
nancial struggles with international cooperation to exploit the 
world." As a result, a permanent peace would emerge. Point¬ 
edly exposing this fallacy, Lenin asserted: "Kautsky's On Super - 
imperialism is aimed at creating an illusion that permanent 
peace could be achieved under capitalism. It is an extremely 
reactionary idea attempting to dupe the masses; it is a means 
to detract people’s attention from contemporary acute contra¬ 
dictions and outstanding problems to an illusory future of the 
so-called ’neosuperimperialism. 1 " (28) Since the fabrication 
of Kautsky*s On Superimperialism, all revisionists have treated 
it as a most valuable treasure. They repeatedly propagated this 
"theory” under different guises and conditions. Modern Soviet 
Russian revisionists headed by Brezhnev described certain 
relative, temporary agreements between the two contemporary 
superpowers as so-called "structures for permanent peace," 
vainly attempting to conceal the deep-seated contradictions be¬ 
tween them and to deceive the people and tranquilize the oppo¬ 
site side in order to facilitate their own imperialist expansion. 



The Unchanging Nature of Imperialism 177 


Within imperialism, there is both competition and collusion. 
Collusion is for the purpose of larger competition. Competition 
is absolute and long term, and collusion is relative and tempo¬ 
rary . Temporary agreements today set the stage for larger 
competition tomorrow. 

Monopoly is the most deep-seated economic basis of imperi¬ 
alism. It determines the aggressive and plundering nature of 
imperialism and will not change. Just as Chairman Mao pointed 
out: "When we say that ’imperialism is very dangerous,’ we 
mean that its nature cannot change. Imperialist elements will 
never put down their weapons or transform themselves into 
Buddhas until their extinction.” ( 29) 

Major Study Reference s 

Lenin, Imp erialism, the Highest Stage of Capitalism , chaps. 
1 - 6 . 

Chairman Mao, "On New Democracy.” 

Chairman Mao, "Cast Away Illusions and Prepare for Strug¬ 
gle.” 

Review Problems 


1. What are the basic characteristics of imperialism? Why 
do we say monopoly is the most deep-seated economic basis 
of imperialism ? 

2. Why do we say the nature of imperialism will never 
change? Criticize On Superimperialism and its disguised ver¬ 
sions. 


Notes 


1) 'Imperialism and the Split in the Socialist Movement,” 
S elected Works of Lenin , Vol. 2, Jen-min ch’u-pan-she, 1972, 
p. 883. 

2) Ibid., p. 808. 

3) Ibid., p. 817. 



178 Fundamentals of Political Economy 


4) "On Contradiction,” Selecte d Work s of Mao Tse-tung, 
Vol. 1, Jen-min ch’u-pan-she, 1968, p. 289. 

5 ) Imperialism, the Highest Stage of Capitalism , 
Selected Works of Lenin, Vol. 2, Jen-min ch'u-pan-she, 1972, 
ppT807-08. 

6) "Materials for the Amendment of the Party Charter," 
Complete Works of Lenin , Vol. 24, pp. 431-32. 

7) Imperialism, the Highest Stage of Capitalism , 

Selec ted Works of Lenin , Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 769. 

8) Ibid., p. 810. 

9) Ibid., p. 779. 

10) Engels, Anti-Duhring , Selected W orks of Marx and En¬ 
gels, Vol. 3, Jen-min ch'u-pan-she, 1972, p. 317. 

11) State and Revolution , Selected Works of Lenin, 

Vol. 3, Jen-min ch'u-pan-she, 1972, p. 171. 

12) Engels, Anti-Duhring , Sel ected Wo rk s of Marx and En¬ 
gels , Vol. 3, Jen-min ch'u-pan-she, 1972, p. 318. 

13) Imperialism, the Highest Stage of Capitalism, 

Selected Works of Leni n, Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 782. 

14) "The Chinese Revolution and the Chinese Communist Party," 
Selected Works of Mao Tse-tung , Vol. 2, Jen-min ch'u-pan- 
she, 1968, p. 589. 

15) Ibid., p. 591. 

16) "Farewell, Leighton Stuart!" Sele cted Works of Mao 
Tse-tung , Vol. 4, Jen-min ch'u-pan-she, 1968, p. 1384. 

17) I mperialism, the Highe st Sta ge of Capitalism , 

Selected Works of Lenin , Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 795. 

18) Ibid., p. 795. 

19) Ibid., pp. 802-03. 

20) Ibid., p. 802. 

21) "Socialism and War," Co mplete W o rks of Lenin , Vol. 21, 
pp. 313-14. 

22) "The Revolutionary Proletariat and National Self- 
Determination," Complete Works of Lenin, Vol. 21, p. 392. 



The Unchanging Nature of Imperialism 179 


23) '’Chinese Wars," C omplete Work s of Lenin , Vol. 4, 
p. 335. 

24) Ibid., p. 336. 

25) "Draft Decisions of the Left Zimmerwaldists," Complete 
Works of Lenin , Vol. 21, p. 324. 

26) "The Current Situation and the Party's Tasks," Selected 
Works of Mao Tse-tung, Vol. 2, Jen-min ch'u-pan-she, 1968, 
p. 578.’ 

27) "Preface to the French and German Editions of Imperi¬ 
alism, the High est Stag e of Capitalism ," Select ed Works 

of Lenin, Vol. 2, Jen-min ch'u-pan-she, 1972, p. 733. 

28) Imperialism, the Highest Stage of Capitalism, 

Selected Wor ks of Lenin , Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 836. 

29) "Cast Away Illusions and Prepare for Struggle," Selected 
Works of Mao Tse-tung, Vol. 4, Jen-min ch'u-pan-she, 196$, 
pp. 1375-7 6^ 



10 

Imperialism Is the Eve of 
Proletarian Socialist Revolution 


Imperialism Is Decaying and Moribund Capitalism* 


After capitalism develops from free competition to the mo¬ 
nopoly stage, its various contradictions intensify. These con¬ 
tradictions, like volcanos, threaten the existence of imperial¬ 
ism. The life of imperialism is then limited. Despite its fierce 
facade, imperialism is a paper tiger. Imperialism is the eve 
of socialist revolution. 

Imperialism Is Parasitic or Decaying Capital ism 


The Stagnating Tendency of the D evelopment 
of Production and Technology 

When capitalism develops into imperialism, it begins to de¬ 
cay and decline. Imperialism is parasitic or decaying capital¬ 
ism. The decaying nature of imperialism is brought about by 
monopoly rule. Monopoly is the economic basis of the decaying 
nature of imperialism. 

The decaying nature of imperialism is primarily manifested 
in the serious obstruction of the development of productive 


*Ti -kuo-chu-i shih wu-ch'an ch'ieh-chi she-hui-chu-i ko- 
ming ti ch T ien-yeh — ti-kuo-chu-i shih fu-hsiu hp ch’ui-ssu 
ti tzu-pen-chu-i. 


180 





Imperialism, the Eve of Socialism 181 


forces by the monopoly organization. It artificially prevents 
technical progress and ushers a stagnating tendency into the 
development of production and technology. Before monopoly, 
the capitalist cannot neglect technological advancement in his 
pursuit of excess profits at the expense of his competitors. In 
the monopoly stage, because the monopoly capitalist controls 
an absolute majority of some production sectors, he can obtain 
high monopoly profits by setting monopoly prices. Thus, the 
motive to adopt advanced technology is weakened to a certain 
degree. Under monopoly rule, the capitalist is afraid that ad¬ 
vanced technology may weaken his monopoly position. He often 
artificially obstructs the development of new technology. 

Why is the monopoly capitalist so afraid of advanced technol¬ 
ogy and why does he obstruct it? First, the widespread adop¬ 
tion of new technology and new equipment almost certainly re¬ 
duces the cost of products and increases output. But it will also 
result in capital loss or the obsolescence of his original ma¬ 
chines and equipment and bring about invisible depreciation; 
second, the adoption of new technology and equipment will lead 
to competition from similar and cheaper commodities which 
may threaten his monopoly position. The monopoly capitalist 
often reduces production to maintain monopoly prices and ex¬ 
tract high monopoly profits. Therefore, many new techniques 
and inventions beneficial to the development of production are 
put aside once their patents have been bought by the monopoly 
capitalist. For example, the technology of artificial petroleum 
is detrimental to the monopoly of the petroleum companies and 
has been put aside for exactly twenty years. The invention of 
atomic energy is a great scientific achievement, but it is used 
by imperialism to make atomic weapons for aggression and not 
fully used as motive power for industry. 

The obstruction of the development of production and tech¬ 
nology by monopoly results in a gradual decline in the rate of 
capitalist expanded reproduction. Take the United States as an 
example. Its industrial production increased by about 3.9 times 
during the thirty years from 1871 to 1900. But in the thirty years 
[sic] from 1901 to 1929, it increased by only 2.7 times. In the 



182 Fundamentals of Political Economy 


thirty years from 1930 to 1959, the average (annual) rate of in¬ 
crease in industrial production was only 4.4 percent. The de¬ 
creasing rate of development in United States production fully 
exposes the decaying nature of imperialism. 

The appearance of a stagnating and decaying tendency in the 
development of production and technology in the imperialist 
stage does not mean that the development of production technol¬ 
ogy in the imperialist countries has come to a standstill. Lenin 
pointed out: "Should we think that this decaying tendency pre¬ 
cludes any rapid development of capitalism, we would be mis¬ 
taken. No, in the imperialist phase, individual industrial fields, 
individual bourgeois classes or strata, and individual countries 
will manifest in different degrees first this tendency and then 
that tendency." (1) This is because free competition leads to 
monopoly. But monopoly by no means eliminates competition. 

It only makes competition more acute or ruthless. In competi¬ 
tion, various monopoly capital groups adopt violence, bribery, 
deception, and fraud to eliminate competitors. At the same 
time, the relative economic strength among various major cap¬ 
italist countries may change. Under the general tendency of 
frustrated development of productive forces, the position of 
some capitalist countries may deteriorate, but the position of 
others may improve. Therefore, in the monopoly stage, the de¬ 
velopment of production and technology in the imperialist coun¬ 
tries suffers a general stagnating tendency. But this by no 
means precludes the possibility of more rapid development in 
the production technology of a particular period, individual, or 
sector. 

In the imperialist phase, the production technology of individ¬ 
ual countries may undergo more rapid development. But, it is 
often temporary and exceptional. Take Japan as an example. In 
the 1950-1971 period, Japan's national product increased by an 
average annual rate of more than 10 percent. This trend cannot 
long be maintained. This faster development of Japan's produc¬ 
tion was a result of substantial help from United States imperi¬ 
alism to the monopoly capital of Japan. The aggressive wars 
against Korea and Vietnam by United States imperialism brought 



Imperialism, the Eve of Socialism 183 


windfall profits to the monopoly capitalists of Japan. During 
the aggressive war against Korea in the 1950-53 period, 
United States imperialism paid Japan at least 2 billion dollars 
for military "special needs" orders. During the aggressive 
war against Vietnam, United States imperialism's payment to 
Japan for "special needs" amounted to 300-400 million dollars 
per year in the first half of the 1960s. From 1965 onward, it 
increased to 500-600 million dollars per year. United States 
imperialism also gave large quantities of loans to the monopoly 
capital of Japan, invested directly in Japan's heavy industry, 
and exported a large number of technical patents to Japan. At 
the same time, Japanese monopoly capital cruelly exploited the 
domestic laboring people and received large amounts of sub¬ 
sidies from the state budget. All these also contributed to the 
fast development of Japan’s industry. The undervalued Japanese 
yen made Japanese goods very competitive in the world market. 
The above shows that the factors that promoted the development 
of Japan’s industry cannot last long. The fast development of 
the Japanese economy is not only temporary but also abnormal 
and without foundations. First, along with the blind development 
of Japanese industry, agricultural production steadily declined. 
After the Second World War, the production of wheat cereals in 
Japan plummeted, the production of beans decreased substan¬ 
tially, and rice production has declined since 1968. From 1960 
to 1970, the self-sufficiency rate of Japan’s food products fell 
from 90 percent to 73 percent. Second, raw materials are 
largely imported and commodities depend heavily on the export 
market. The import ratio of ten major items of raw materials, 
including copper, aluminum, iron ore, petroleum, and coal, was 
71 percent in 1960 and increased to 90 percent in 1970. The 
export ratio of Japanese industrial products increased from 
18.3 percent in 1950 to 30.1 percent in 1969, including 46.4 per¬ 
cent of synthetic fiber woven goods, 67.4 percent of sewing 
machines, and 68.9 percent of ships. These facts show that 
the foundation of Japan's economic development is very shaky. 

It is impossible to sustain development at present rates on a 
long-term basis. The tendency toward stagnation will inevitably 
dominate. 



184 Fundamentals of Political Economy 


The Militarization of the Nation a l Economy Seriously 
Undermines the Socia l Prod uctive Forc e 

The militarization of the national economy runs into a blind 
alley that imperialist economic development must ultimately 
follow. It is an inevitable result of the development of the in¬ 
herent contradictions of capitalism and is also a concrete mani¬ 
festation of the increasingly decaying nature of imperialism. 

To reduce the contradiction between the growth of capitalist 
productive forces and inadequate effective demand for the labor¬ 
ing masses and to avoid economic crises and redivide the world 
to obtain high monopoly profits, imperialism madly expands re¬ 
armament to prepare for wars. An increasing amount of the na¬ 
tional income is used to support a large army, make weapons, 
support war-related research, and engage in imperialist ag¬ 
gressive wars. 

The militarization of the national economy in the imperialist 
countries is first expressed in the increase of military expendi¬ 
tures. After the Second World War, the share of military de¬ 
fense expenditures in the United States budget steadily increased. 
From 1946 to 1970, direct United States military expenditures 
totaled 1,100 billion dollars, averaging 45 billion dollars a year. 
In the 1972-73 fiscal year, direct military expenditures totaled 

78.3 billion dollars. With 11.7 billion dollars as subsidies for 
veterans and 3.2 billion dollars for the space program, the 
three items added up to 93.2 billion dollars. It was also mani¬ 
fested in the increasing shares of industrial production and sci¬ 
entific research in armament industries and military scientific 
research. A large amount of the labor force was transferred 
from the production sphere of social wealth to armament indus¬ 
tries and military scientific research fields. In 1967-68, the 
level of employment in United States armament production in 
several sectors and its ratio to the total labor force were: 
126,900 in electronic equipment, or 33.8 percent; 256,900 in 
radio equipment, television sets, and telecommunications tools, 
or 38.6 percent; and 615,900 in aircraft and accessories, or 

72.4 percent. Of the total United States scientific and technical 



Imperialism, the Eve of Socialism 185 


manpower, two-thirds is related to armament and space re¬ 
search. In the United States labor force of 77 million (excluding 
armed forces), about 20 percent depends on armament orders 
from the Defense Department. 

The general militarization of the national economy in the im¬ 
perialist countries led to serious unfavorable consequences. In 
recent years, the United States has spent about 100 billion dol¬ 
lars on armament and aggression. The products are either used 
to murder people in the battlefield and destroy social wealth or, 
if stored away, soon become scrap. They may become "obso¬ 
lete" before even leaving the plant when new weapons are in¬ 
vented. The militarization of the national economy has brought 
about strange results: the inflationary expansion of the arma¬ 
ment industry and the deflationary contraction of civilian indus¬ 
tries. In the past twenty years, the production of guided mis¬ 
siles, aircrafts, and space vehicles in the aeronautics and space 
industries in the United States has increased its value by six 
times. On the other hand, the development of civilian industries 
has been slow. Some industries have had to reduce production. 
Take the textile industry as an example. The output in 1970 was 
only 88 percent that of 1950. The policy of aggression and wars 
pursued by imperialism and the militarization of the national 
economy lead to an immense waste of manpower, goods, and 
wealth and to great destruction of social wealth. This is a nota¬ 
ble feature of the decaying nature of imperialism. 

The Bourgeoisie Increasingly Becomes a 
Stratum That Thrives Solely on Interest 


The parasitic and decaying nature of imperialism is further 
manifested by the bourgeoisie's increasingly becoming a stra¬ 
tum that thrives solely on interest. This so-called stratum that 
thrives on interest refers to those who have lost all connection 
with the production process and "live on interest." The bour¬ 
geoisie has never been engaged in production labor and has led 
an extravagant life by exploiting the worker. In the stage of im¬ 
perialism, the parasitic nature of the bourgeoisie develops 



186 Fundamentals of Political Economy 


further. Capitalist enterprises are wholly managed by special¬ 
ized managerial personnel. The bourgeoisie, especially the mo¬ 
nopoly bourgeoisie, is completely divorced from the production 
process and lives a parasitic life solely on income from stocks 
and shares. Lenin pointed out long ago, 'Imperialism is simply 
a great concentration of money capital in a few countries," 

"and thus the stratum of people who live on interest and do not 
work increases rapidly." (2) For example, the income from 
dividends and individual interest in the United States in 1950 
totaled 19.5 billion dollars. In 1963, it reached 50.3 billion dol¬ 
lars, an increase of 157 percent. The national income increased 
by only 102 percent in the same period. In 1970, the income 
from dividends and individual interest in the United States 
reached 89.7 billion dollars. The United States monopoly bosses 
lead extravagant lives with the income from exploitation. Some 
bosses of financial groups not only build villas, golf courses, 
and hunting grounds, using a lot of land for their own pleasure, 
but also show off their riches to each other. In 1964, one big 
United States monopoly capitalist named Ford spent half a mil¬ 
lion dollars for a party to celebrate his daughter's birthday. 

Not too long afterward, another big monopoly capitalist named 
Mellon spent a million dollars on a party to introduce his daugh¬ 
ter to "society" to impress Ford. This incident fully exposed 
the parasitic nature of the monopoly bourgeoisie. 

Another feature of imperialism is a rapid increase in capital 
export. With the increase in capital export, a few rich countries 
can become interest-earning countries that specialize in ex¬ 
ploiting the people of colonies and satellite countries, being 
parasites on many economically underdeveloped countries. Ac¬ 
cording to statistics, from 1950 to 1970 the interest from direct 
private United States investment reached 88.77 billion dollars, 

14 percent higher than the total amount of direct private foreign 
investment up to the end of 1970. Direct United States invest¬ 
ment in Latin America was 3 billion dollars in 1946 and in¬ 
creased to 11.7 billion dollars in 1969. But in these twenty- 
four years, interest derived from direct investment in Latin 
American countries which was paid to the United States alone 



Imperialism, the Eve of Socialism 187 


amounted to 23.49 billion dollars, much higher than the net 
amount of direct United States investment. 

United States interest derived from overseas is largely re¬ 
mitted annually to the United States to be spent by a handful of 
monopoly bourgeoisie. In the 1960-1970 period, remitted inter¬ 
est reached 43.4 billion dollars. During this period, unremitted 
interest amounting to 19 billion dollars was used for reinvest¬ 
ment to increase foreign exploitation. Thus, with United States 
imperialism's annual increase in foreign investment and inter¬ 
est, its parasitic nature also increased yearly. 

All this shows that capital export is a solid foundation for im¬ 
perialism’s oppression and exploitation of the majority of na¬ 
tions and countries and a solid foundation for the parasitic cap¬ 
italism of a few rich countries. 

Th e Appe ar ance of Worker- E lites Is Another 
Manifestation of the Par a sitic Nature of C apitalism 

The parasitic nature of imperialism is inevitably reflected in 
the labor movement. The formation of worker-elites and the 
appearance of revisionism are reflections of the parasitic na¬ 
ture of imperialism in the labor movement. Lenin pointed out: 
'Interest-earning countries are parasitic and decaying capital¬ 
ist countries. This condition cannot but have effects on all so¬ 
cial and political conditions of these countries, especially on 
two basic factions in the labor movement." (3) The monopoly 
bourgeoisie plunders and exploits the proletariat of colonies, 
satellite countries, and their own countries to obtain large 
amounts of high monopoly profits. To suppress opposition from 
the toiling masses, they use a small part of the huge monopoly 
profits to bribe a number of scabs to become agents of the mo¬ 
nopoly bourgeoisie. These are worker-elites who get high sal¬ 
aries and live like the bourgeoisie, serving the monopoly bour¬ 
geois class. They mingle with the workers and specialize in 
selling out the interests of the working class and subverting 
worker movements. These worker-elites are loyal running 
dogs of the monopoly bourgeoisie of the imperialist countries. 



188 Fundamentals of Political Economy 


High profits from monopoly capital is the economic basis of 
revisionism in the labor movement. Under imperialist condi¬ 
tions and with the appearance of the worker-elites, a revisionist 
theory and line to protect imperialist rule emerges. The worker- 
elites are bourgeois elements disguised as workers. Revision¬ 
ism is a bourgeois class theory under the guise of Marxism. 

The worker-elites and revisionists are the most treacherous 
hidden enemies in the labor movement, and they may be re¬ 
garded as boils on the body. If these boils are not completely 
removed, imperialism will maintain its decaying condition for 
a longer period of time. But, just as Lenin pointed out, "The 
rapid and vicious development of opportunism does not assure 
its victory.” (4) Lenin further pointed out, 'If the struggle 
against imperialism is not closely associated with the struggle 
against opportunism, then it is just so many empty words.” (5) 

Toward Total Political Reaction and the Steady 
Incr ease i n the Severity of Social Crises 

In the stage of capitalist free competition, the bourgeoisie 
still uses "democracy,” "freedom,” "equality,” and "universal 
love” as guises to conceal the truth of bourgeois dictatorship. 

In the stage of imperialism, these thin "veils” are steadily 
trimmed down. Whoever opposes oppression and exploitation 
will be cruelly suppressed. Lenin pointed out: "The political 
superstructure of this new economic order, namely, monopoly 
capitalism (imperialism is monopoly capitalism), is trans¬ 
formed from democracy to political reaction. Free competition 
requires democracy,but monopoly requires political reaction." (6) 
In the United States, not only people who oppose violence were 
suppressed, but people who championed nonviolence have also 
been slaughtered. In 1968, a black American minister named 
Martin Luther King was murdered by the United States imperi¬ 
alists because he opposed racial discrimination and fought for 
civil rights. In line with total political reaction, imperialism 
has also degenerated in its ideology and culture. In imperialist 
countries, publications and movies devoted to violence and sex 


Imperialism, the Eve of Socialism 189 


have flooded the market. In California, there have been thirty 
companies specializing in making sex movies. In the capitalist 
world, strange clothing, modern dances, and "Beatles” music 
bands have been common, and exhibitions of "impressionist" 
art painted by monkeys have been much in vogue. International 
contests of women "crying" and crawling races for babies under 
a year old are reported to have taken place. The culture and 
art under imperialism have been rotten to the core. Criminal 
activities such as theft and robbery and gangsterism and drug 
abuse have reached crisis proportions. 

Facing this rotten society, many youths perceive a spiritual 
void, feeling that life is empty and meaningless and without a fu¬ 
ture. Some United States historians think that the United States 
"faces a situation in which the people have lost faith in their 
ideals, system, and future" and "are plagued by numerous cri¬ 
ses." Some are even more blunt: "Our crises, which are spir¬ 
itual in nature, can be traced to the obvious failure of our self- 
inflating capitalist social system" ( Newsweek , July 6, 1970). 
Amidst the profound contradictions of imperialism, a few pro¬ 
gressive elements gradually wake up to accept Marxism and 
reestablish the Marxist party and organization, unite the masses, 
and engage in resolute struggle against the imperialist system. 

The parasitic and decaying nature of imperialism which re¬ 
sults from the basic characteristic of imperialism, namely, 
monopoly, reveals that imperialism is merely a paper tiger. 

It looks fierce, but in fact it does not have much strength. The 
masses are the ones with real power, not imperialism or re¬ 
actionaries. Just as Chairman Mao pointed out, "From a stra¬ 
tegic viewpoint, or a long-run viewpoint, or looking at their 
substance, we must in effect treat imperialism and all reac¬ 
tionaries as paper tigers." (7) 

Impe rialism Is Dying Cap italism 

The Inte nsificat ion of the Contradictio n betw een 
t he Proletari at and t he Bourgeoisie within 
t he Imperiali st Countries 

Stalin said: ’'Lenin called imperialism ’dying capitalism.' 






190 Fundamentals of Political Economy 


Why? Because imperialism carries the contradictions of cap¬ 
italism to their end. What follows is the beginning of revolu¬ 
tion.” (8) When capitalism develops into the monopoly stage, 
the basic contradictions between the proletariat and the bour¬ 
geoisie and the capitalist nature of society have not changed. 
However, in the imperialist stage, monopoly has not only pushed 
social production to a larger scale but has also brought about 
even more concentration of the private ownership of the means 
of production. The development of the basic contradictions of 
capitalism intensifies all external and internal contradictions 
of imperialism. Chairman Mao pointed out, ”The intensification 
of the contradiction between the two classes (the proletariat and 
the bourgeoisie), the development of contradictions between mo¬ 
nopoly and competitive capital, the intensification of contradic¬ 
tions between the suzerain and the colonies, and the acute mani¬ 
festation of contradictions among imperialist countries due to 
their uneven development lead to a special stage of capitalism, 
namely, imperialism.” (9) Because of the serious intensifica¬ 
tion of all external and internal contradictions in imperialist 
countries, imperialism becomes dying capitalism, and the eve 
of proletarian socialist revolution draws near. 

To pursue high monopoly profits, the monopoly bourgeoisie 
doubles its efforts to exploit and plunder the workers and push 
millions of laboring masses to the brink of starvation. The mo¬ 
nopoly bourgeoisie devises various intensive labor systems, 
raises labor intensity, worsens labor conditions, and indiscrim¬ 
inately and incessantly increases its exploitation of the work¬ 
ers. The bourgeoisie also consciously relies on inflation to re¬ 
duce real wages and lower purchasing power. For example, in 
the 1963-1970 period, prices and the cost of living increased 
yearly in major capitalist countries because of inflation. In 
this period, the United States’ cost of living increased 26.8 per¬ 
cent. In Britain, it increased 35.3 percent; in France, 30.9 per¬ 
cent; in West Germany, 20.6 percent; and in Japan, 44.4 per¬ 
cent. Wages, however, did not increase sufficiently to offset 
inflation and the increasing cost of living. The livelihood of the 
laboring people worsened further. Through the government, 



Imperialism, the Eve of Socialism 191 


monopoly capital plundered the laboring masses even more 
with excessive taxation. In the 1940-1970period, tax revenue in 
the United States increased by sixteen times, from 16.5 billion 
dollars in 1940 (20 percent of the national income) to 278 billion 
dollars in 1970 (35 percent of the national income). Heavy taxa¬ 
tion weighed down the laboring people, choking them breathless. 

To protect its economic interests, monopoly capital inevitably 
resorts to fascist dictatorship to intensify the suppression of 
the workers through the state machinery. Overall political re¬ 
action is a natural political reflection of a monopoly capitalist 
economy. To implement fascist dictatorship and to suppress 
the people, imperialism expands the reactionary government 
machinery to a horrifying extent. Take the United States for 
example, where one out of every twenty people is an employee 
of the reactionary state machinery. 

The ruthless economic exploitation and bloodthirsty political 
suppression of the proletariat by the monopoly bourgeoisie in¬ 
tensify the contradiction between the proletariat and the bour¬ 
geoisie. The heavier the oppression, the stronger the resis¬ 
tance. The daily awakening of millions of members of the pro¬ 
letariat and the laboring masses continuously wages revolution¬ 
ary struggle against the capitalist system. 

Since the Second World War, especially in recent years, 
strong and massive worker movements have come into exis¬ 
tence. The struggle against imperialism is intensifying. Ac¬ 
cording to obviously deflated official United States figures, in 
1970 United States workers were on strike 5,600 times and 3.3 
million workers participated. In 1971, both a nationwide strike 
involving 500,000 telephone workers and a strike involving 
160,000 railway workers occurred. In the strikes, the workers 
chanted the combat slogan of "oppose (aggressive) wars, oppose 
poverty, oppose oppression," and they increasingly combined 
economic struggle with political struggle. According to official 
data from Britain (also obviously deflated), in 1970 there were 
3,888 strikes with 1.65 million workers participating. In 1971, 
13.5 million workdays were lost in connection with strikes in 
Britain. The revolutionary struggles of the Japanese working 



192 Fundamentals of Political Economy 


class have also gathered strength. According to official Japa¬ 
nese statistics, the number of so-called '’labor-capital dis¬ 
putes” (actually struggles of the worker against the capitalist) 
increased from 1,345 in 1955 to 5,283 in 1969, an increase of 
2.9 times. In the same period, the number participating in¬ 
creased from 3.748 million to 14.483 million, an increase of 
about three times. 

The mushrooming development of worker movements is a re¬ 
volt by a vital organ of imperialism. It promotes the further 
deterioration of capitalist economic and political crises and in¬ 
cessantly deals serious blows to the rule of monopoly capital. 
The fate of imperialism is increasingly precarious. 

The Contradiction between Impe rialism 
and the Oppressed Nations Widens 


’’Colonies were seized with gunpowder and swords." (10) Af¬ 
ter it has seized colonies and semicolonies with force, imperi¬ 
alism ruthlessly exploits and enslaves these areas and nations. 
To exercise political control, it buttresses puppets, stations 
armed forces, and establishes military bases. To facilitate eco¬ 
nomic exploitation, it forcibly opens trading ports, controls cus¬ 
toms and external trade, monopolizes money and finance, and 
forcibly seizes the rights to mine, operate factories, and navi¬ 
gate on inland waterways. To obtain high monopoly profits, the 
imperialist country ruthlessly exploits and oppresses the peo¬ 
ple of the colonies and semicolonies. The contradictions be¬ 
tween imperialism and the oppressed nations are aggravated to 
an unprecedented degree. Imperialism controls the economic 
pulse of the colonies and semicolonies and colludes with local 
feudal power and comprador capital to restrict the development 
of their national economies. Imperialism also resorts to vari¬ 
ous measures to force the national economies of the colonies 
and semicolonies to be "simplified," that is, to produce only a 
few commodities required by foreign monopoly organizations, 
and thus cause their economic development to be lopsided and 
abnormal. As a result, the economies of these areas cannot be 



Imperialism, the Eve of Socialism 193 


independent or self-sufficient, but can only rely on imperialism. 

Since the Second World War, new upsurges have been appear¬ 
ing continuously in the national liberation movements of Asia, 
Africa, and Latin America. Many countries and areas have 
freed themselves from the fetters of imperialism and colonial¬ 
ism and have started on their independent roads. However, im¬ 
perialism will never automatically retreat from the large areas 
of Asia, Africa, and Latin America. In addition to their usual 
colonial measures, they have increasingly resorted to neo¬ 
colonial measures and have vainly attempted, under the guise 
of economic "aid," to further their vicious scheme of control¬ 
ling these newly emerging independent countries. Through "aid," 
the capitalists have sought to dump their surplus goods and have 
used "aid" as a means of selling commodities. Through "aid," 
they have sought to control the economic policy of the recipient 
countries and control the development of these national econo¬ 
mies. When some countries have refused to buy this imperialist 
trick, the imperialists have resorted to aggression and subver¬ 
sion and have gathered reactionary forces to instigate coups 
d’etat and overthrow progressive governments that have opposed 
imperialism and insisted on national independence. 

The cruel plunder and bloodstained enslavement have widened 
and intensified the contradictions between the imperialists and 
the oppressed nations and peoples. From the day when the im¬ 
perialist bandits set their feet on the sacred land of Asia, Af¬ 
rica, and Latin America, the oppressed nations and people who 
dearly treasure their freedom and independence have taken up 
stones, bows and arrows, spears, and artilleries to deal blows to 
imperialism. The heavier the exploitation and the tighter the 
oppression by imperialism, the more intense has become the 
resistance struggle of the oppressed nations and peoples. After 
the October Revolution, the national liberation movement ush¬ 
ered in a new historical era, constituting part of the proletarian 
socialist world revolution. The national liberation movements 
and the proletarian revolutionary movements in the imperialist 
countries are interrelated and mutually supporting. The colo¬ 
nies and semicolonies, once the reserve army of imperialism, 



194 Fundamentals of Political Economy 


have now become the reserve army of the proletarian world 
revolution. Just as Chairman Mao pointed out, ’’The revolution¬ 
ary storm which has swept over Asia, Africa, and Latin Amer¬ 
ica will surely deal a decisive and demolishing blow to the whole 
old world.” (11) 

The Intensification of Con tradi ction s 
among Imper ialist Countries 

Imperialism's struggle to divide the world economically and 
territorially has intensified the contradictions among the impe¬ 
rialist countries. Their struggles for hegemony and territory 
and their mutual fighting and massacring will really help the 
oppressed and exploited nations rise up to revolt. 

The increasingly uneven economic and political development 
among capitalist countries in the imperialist stage further in¬ 
tensifies the contradictions among the imperialist countries. 

Lenin pointed out, "Uneven economic and political develop¬ 
ment is the absolute law of capitalism.” (12) In the capitalist 
world, some countries develop faster, and others slower. Some 
countries even advance by leaps and bounds in certain periods 
of time. The uneven economic development among the capitalist 
countries inevitably leads to uneven political development. In 
other words, uneven economic development must inevitably lead 
to changes in the relative strength of the imperialist countries. 

The law of uneven economic and political development has 
played a role in the whole history of capitalism. However, in 
the imperialist period, this uneven development of capitalism 
intensifies. In the second half of the nineteenth century, Eng¬ 
land, an old capitalist country, seized a great number of colo¬ 
nies and assumed a monopoly position in the world. Her rela¬ 
tively easy and complacent position of manipulating high profits 
from her territories all over the world lulled her into stagna¬ 
tion in technology and production. Meanwhile, armed with new 
technology, the capitalist countries which arose later, espe¬ 
cially the United States and Germany, accelerated their develop¬ 
ment. In the 1880s, the United States had already caught up with 



Imperialism, the Eve of Socialism 195 


England and had taken the lead in world industrial production, 
and by the early twentieth century, Germany had also surpassed 
England, assuming second place in world industrial production. 
The shift in the relative positions of economic strength had 
brought about a relative shift in political power. Following the 
shift of the balance of power, the countries began to struggle 
to redivide their spheres of influence and colonies. 

Since the Second World War, the law of uneven economic and 
political development among imperialist countries has continued 
to play a role. Its characteristics have been: the decline of the 
United States, the continued decline of England, the rapid ascen¬ 
sion of West Germany and Japan, and the substantial gains of 
Italy and France. In the twenty years from 1949 to 1969, the 
annual average growth rates in the national product of these 
countries were: the United States — 3.9 percent in the first ten 
years and 4.3 percent in the second ten years; England — 2.5 
percent in the first ten years and 3 percent in the second ten 
years; West Germany — 7.4 percent in the first ten years and 
5.2 percent in the second ten years; France — 4.5 percent in 
the first ten years and 5.9 percent in the second ten years; 

Italy — 6.1 percent in the first ten years and 5.6 percent in the 
second ten years; Japan — more than 10 percent for the whole 
period. New and uneven conditions appeared in their relative 
strength in terms of industrial production, capital and commod¬ 
ity exports, and international financial positions. The intensifi¬ 
cation of uneven economic and political development among the 
imperialist countries inevitably intensified the struggles among 
them for markets and supply bases for raw materials and for 
outlets for capital exports. 

The operation of the law of uneven economic and political de¬ 
velopment inevitably led to wars and slaughter among the im - 
perialist countries, thus revealing their weak links. These then 
became favorable conditions for the proletariat and the revolu¬ 
tionary peoples to bury imperialism. In his study of the laws 
of imperialist development, Lenin arrived at an important con¬ 
clusion: Because of their uneven economic and political devel¬ 
opment, the imperialist battlefront will be smashed at its 



196 Fundamentals of Political Economy 


weakest link, and socialist revolution will first triumph in one 
or several countries. Lenin not only created a revolutionary 
theory for our achievement of victory, he also set a brilliant 
example of how to carry out revolution. In the First World War, 
Russia was the focal point of all contradictions in imperialism 
at that time and was also the weakest link in the imperialist 
chain. Lenin seized this link and led the Russian proletariat to 
launch the great socialist October Revolution, overthrow the 
Russian bourgeois dictatorship with revolutionary violence, es¬ 
tablish the world's first socialist country under proletarian dic¬ 
tatorship, and usher in a new era in human history. After the 
Second World War, the great victory of the national revolutions 
in China and other countries of Asia and Europe further con¬ 
firmed the accuracy of Lenin's scientific theory. 

The outbreak of the two world wars, the victorious march of 
the proletarian socialist revolutions, and the upsurge of na¬ 
tional liberation movements further aggravated imperialism's 
political, economic, and social crises. 

Although immense changes have occurred in the world, the 
imperialist period is not yet over. Chairman Mao often teaches 
us: We are still in the period of imperialism and proletarian 
revolution. Lenin's scientific analysis of imperialism based on 
the fundamental principles of Marxism is entirely correct. The 
basic principle of Leninism is not outdated; today it still re¬ 
mains the theoretical basis of our thought. 

The life of imperialism will not be long. It is parasitic and 
dying capitalism on the eve of proletarian socialist revolution. 
But, it will never retreat from the historical stage of its own 
free will. The nature of imperialism determines that the closer 
it draws to the end of its life, the more desperately it will strug¬ 
gle for survival. We must realize that imperialism is basically 
weak, a paper tiger. We must cultivate a bold spirit, daring to 
struggle and being good at struggle. And we must unite the rev¬ 
olutionary peoples of the world to carry the struggle against 
imperialism to the end. "Make trouble, fail, make trouble 
again, fail again until doom — this is the logic used by impe¬ 
rialism and all reactionary groups of the world to deal with the 



Imperialism, the Eve of Socialism 197 


people’s uprisings. They will never deviate from this logic.” (13) 
Making trouble is an expression of the desperate struggle of 
imperialism; to be doomed to failure until its elimination is the 
inevitable destiny of imperialist development. No one can change 
this law of history. 

Major Stud y R eferences 

Lenin, Imperialism, the Highest Stage of Capitalism , 
chaps. 7-10. 

Lenin, 'Imperialism and the Split in the Socialist Movement.” 
Chairman Mao, "Talk with American Correspondent Anna 
Louise Strong.” 

Re view Prob l ems 

1. Why do we say that imperialism and all reactionaries are 
paper tigers ? 

2. Why do we say that imperialism is the eve of proletarian 
socialist revolution ? 


Notes 

1) Imperialism, the Highest Stage of Capitalism, Se¬ 
lected Works of Lenin, Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 842. 

2) Ibid., p. 818. 

3) Ibid., p. 820. 

4) Ibid., p. 843. 

5) Ibid. 

6) "On the Ridicule of Marxism and 'Imperialist Economism,' ” 
Complete Works of Lenin , Vol. 23, p. 34. 

7) Notes on "Talk with American Correspondent Anna 
Louise Strong,” Selected Works of Mao Tse-tung , Vol. 4, Jen- 
min ch'u-pan-she, 1968, p. 1088. 

8) "On the Basis of Leninism," Complete Works of Stalin , 
Vol. 6, p. 65. 




198 Fundamentals of Political Economy 


9) M On Contradiction,” S elected Works of Mao Tse-tung , 
Vol. 1, Jen-min ch'u-pan-she, 1968, p. 289. 

10) "Socialism and War," Selected Works of Lenin , Vol. 2, 
Jen-min ch’u-pan-she, 1972, p. 672. 

11) Chairman Mao, "A Congratulatory Telegram to the Fifth 
Congress of the Labor Party of Albania," quoted in Jen-min 
jih-pao [People's Daily], November 4, 1966. 

12) "On the Slogan of European Alliance," Complete Works 
of Lenin , Vol. 21, p. 321. 

13) "Cast Away Illusions and Prepare for Struggle," Selec ted 
Works of Mao Tse-tung , Vol. 4, Jen-min ch’u-pan-she, 1968, 

p. 1375. 



11 

Soviet Revisionist Social Imperialism 
Joins the Ranks of World Imperialism 


Social Imperialism Is Socialism in Name 
But Imperialism in Substance* 


In the process of imperialism’s gradual extinction, there 
emerged, in the mid-twentieth century, Soviet social imperial¬ 
ism. Under the leadership of Lenin and Stalin, Russia was once 
a great socialist country. But after Stalin passed away, the ren¬ 
egade clique of Khrushchev and Brezhnev launched a counter¬ 
revolutionary coup, seized Party and government power, re¬ 
stored capitalism in a big way, and transformed the Soviet 
Union into a social imperialist country. 

During the First World War, Lenin denounced Kautsky, the 
head of the German Social Democratic Party at that time, as 
being a ’"social imperialist,’ that is, one who is nominally a 
socialist, but actually an imperialist." (1) The renegade clique 
of Brezhnev, like Kautsky, is also social imperialist. The only 
difference is that it not only peddles revisionism, but also de¬ 
fends imperialism. What is more, it controls state power, and 
has transformed a great country created by Lenin himself into 
a social imperialist country. Social imperialism is imperialism 

*Su-lien she-hui ti-kuo-chu-i ts'an-chia shih-chieh ti-kuo- 
chu-i hsing-lieh — she-hui ti-kuo-chu-i shih k'ou-t’ou shang 
ti she-hui-chu-i shih-chi shang ti ti-kuo-chu-i. 


199 



200 Fundamentals of Political Economy 


with a "socialist” label. The fact that it emerged in the Soviet 
Union, Lenin's homeland and once a great socialist country, 
makes it more deceptive and dangerous. It is a very vicious 
imperialism indeed. 

State Monopoly Capitalism Is the Main E conomic 
Basis of Social Imperialism 

T he Forma t ion of the Soviet U nion's 
State Monopoly Capitalism 


Whether it is capital imperialism or social imperialism, 
they are identical in their basic economic characteristics. Their 
main economic basis is monopoly capitalism. But, in capital 
imperialist countries, there are two forms of monopoly capital¬ 
ist economy, namely, private and state monopoly capitalism. In 
social imperialist countries, monopoly capitalism always takes 
the form of state monopoly capitalism. State monopoly capital¬ 
ism is the main economic basis of social imperialism. This 
difference between social and capital imperialism is deter¬ 
mined by the different historical conditions under which monop¬ 
oly capital was created. 

The monopoly capital of the capital imperialist countries was 
formed gradually in the process of acute competition in the pri¬ 
vate capitalist economy through capital accumulation and con¬ 
centration. There, private monopoly capitalism appeared first 
and existed on a large scale. Only after private monopoly 
capitalism had developed to a certain extent and when monopoly 
capital and state power had combined with the state machinery 
to serve monopoly capital did state monopoly capitalism arise. 
State monopoly capitalism in the social imperialist country ap¬ 
peared when the people in power taking the capitalist road 
usurped the Party and government power in the socialist coun¬ 
try and, in the process, transformed the socialist economy to 
restore capitalism. 

After the Soviet renegade clique usurped the Party and gov¬ 
ernment power in the Soviet Union, the Russian bourgeois priv- 







Social Imperialism as Imperialism 201 


ileged stratum greatly expanded its own political and economic 
power, assuming a dominant position in the Party, government, 
military, and economic and cultural spheres and forming a bu¬ 
reaucratic monopoly bourgeoisie which controls the whole state 
machinery and social wealth. This new bureaucratic monopoly 
bourgeoisie used the state power under its control to transform 
socialist ownership into ownership by those taking the capitalist 
road and to transform the socialist economy into a capitalist 
economy and a state monopoly capitalist economy. 

The nature of a society’s economy cannot be determined by 
its label, but by the ownership of the means of production. In 
other words, it must be determined by who owns the means of 
production, who allocates it, and whom it serves. After the ren¬ 
egade clique of Khrushchev and Brezhnev usurped Party and gov¬ 
ernment power in the Soviet Union, it exercised total control 
over political and economic power and pursued a thoroughly re¬ 
visionist line in the economic sphere. It extolled the "ruble as 
a measure of labor merit" and "the ability to earn a profit as 
the best criterion for evaluating Communist Party members in 
charge of operations and management." Under the support of 
the Soviet revisionist renegade clique, Liberman, an economist 
of revisionism, proposed a scheme of state enterprise manage¬ 
ment that relied on profit and material incentives, and the "ex¬ 
periment" was widely disseminated. Since Brezhnev succeeded 
Khrushchev, the "new economic system” has been instituted 
nationwide. The profit principle of capitalism has been legally 
affirmed to strengthen the exploitation of the laboring people by 
the bureaucratic monopolist oligarchy. With these "transfor¬ 
mations," the means of production which formerly belonged to 
the people of the Soviet Union are now owned by and at the ser¬ 
vice of the new bureaucratic monopoly bourgeoisie. The worker 
and peasant of the Soviet Union have been deprived of their 
means of production and reduced once more to hired laborers. 
Although the Soviet Union may still carry the socialist label, 
the original socialist ownership system has in fact been trans¬ 
formed into an ownership system of the bureaucratic monopoly 
bourgeoisie. 



202 Fundamentals of Political Economy 


In socialist society, the state-ope rated economy based on so¬ 
cialist state ownership is a leading element in the national econ¬ 
omy. Once the revisionist renegade clique usurps the leader¬ 
ship of the socialist economy, it is naturally transformed into 
a state monopoly capitalist economy. This is because the more 
productive forces the new bureaucratic monopoly bourgeoisie 
puts under state ownership representing its interests, the more 
it can control the whole society’s wealth in the name of the 
’'state." This way, it not only can continue using the state label 
to deceive the laboring people, but through state capitalism can 
also tightly control the national economy. Therefore, the out¬ 
standing characteristic of the Soviet Union's capitalist economy 
is that state monopoly capitalism controls and commands every¬ 
thing. This situation is rare in the capital imperialist country. 
In the capital imperialist country, although state monopoly cap¬ 
italism has undergone sizable development, it has not yet 
reached the state which prevails in the Soviet Union. Because 
of exploitation and oppression, the Soviet working class, espe¬ 
cially the mass of laboring people, has suffered heavily. Lenin 
once pointed out: "Under private ownership of the means of pro¬ 
duction, more monopolization and nationalization will inevitably 
lead to greater exploitation and oppression of the laboring 
masses and to greater difficulties in staging revolts. Simi¬ 
larly, any strengthening of the reactionary military dictatorship 
will inevitably result in raising the capitalist profits exploited 
from other classes and in inflicting decades of suffering on the 
working class who will have to pay the capitalists for the bil¬ 
lions of dollars which the military dictatorship has borrowed." (2) 
As we read this passage by Lenin, it sounds like an accurate 
economic analysis of Soviet state capitalism. Nekarsov, a 
well-known Russian poet, denounced in grief and anger the 
black rule of the old czar, "In Russia, who can be happy or 
free?" Today in Russia, the children of the heroes of the Oc¬ 
tober Revolution are suffering multiple hardship with no joy or 
freedom to speak of. But the bureaucratic monopoly bourgeoisie 
headed by Brezhnev plunder the state treasury,,lead extrava¬ 
gant lives, exercise cruel and arbitrary rule, and suck the 



Social Imperialism as Imperialism 203 


blood and sweat of the people of the Soviet Union at will. The 
bureaucratic monopoly bourgeoisie headed by Brezhnev is the 
class basis of social imperialism and a "personification’' of 
state capitalism. 

The Trust Is the Basic Form of the Mono poly 
Organization of Soviet Revisionism 


An important form of organization in the state capitalism of 
Soviet revisionism is the "trust." The ways in which trusts are 
established differ from the monopoly organization of capitalist 
countries. They are formed by merging the big enterprises 
with many medium and small enterprises through the use of 
state coercion. 

The trust as a form of monopoly organization developed rap¬ 
idly in the Soviet Union. In 1961, there were only 2 such trusts. 
Ten years later, in June 1971, there were 1,400 such trusts 
with more than 14,000 enterprises and 7.7 million employees. 
Nearly one-third of the mining enterprises were trusts. At the 
"Twenty-fourth National Congress" of the Soviet Union, Brezh¬ 
nev exclaimed, ’The policy to establish trusts and merged en¬ 
terprises must be carried out more resolutely — in the future, 
they should become the basic economic accounting unit in so¬ 
cial production." Following the order of the Soviet revisionist 
leadership group, since 1971 the trust system has extended its 
sphere of dominance to include all the Soviet Union’s manufac¬ 
turing sectors. 

There are three basic types of Soviet revisionist trusts: 

First, the absorbed enterprises 'lose their independence and 
status as legal persons." The trust becomes "the basic eco¬ 
nomic accounting unit of social production" and possesses all 
the rights over its subordinate enterprises. 

Second, some absorbed enterprises lose their legal indepen¬ 
dence, while others "maintain relative independence." 

Third, the absorbed enterprises are "still independent," but 
are administered by the trust. 

Of the above three types of trusts, Soviet revisionism empha- 



204 Fundamentals of Political Economy 


sized the development of the first type. It was modeled after 
that of Western monopoly capitalist enterprises and '‘used” 
their "organization system chart." Soviet revisionism publi¬ 
cized the trust as "embodying a compressed and dormant future 
structure of Russian industries" and as being a type of "special 
Russian consortium." The trust not only engages in production, 
but also deals with the supply of raw materials and the distribu¬ 
tion of products. The difference between the trust and the West¬ 
ern monopoly capitalist enterprise is that the alliance between 
the Russian trust and state power is much closer. It is not only 
a basic economic accounting unit, it also carries out part of the 
functions originally exercised by the General Control Bureau or 
even the Ministry of Control with respect to planning, produc¬ 
tion, supply, and distribution. Large and regional trusts are 
"not only an integrated production unit but also an economic 
management organ." There are no middle organs between the 
various ministries in charge of economic control and the trusts. 
The managers of the trust, like the secretaries and deputy sec¬ 
retaries of government ministries, are listed as "leading mem¬ 
bers of the national economy" of Soviet revisionism. They are 
important members of the bureaucratic monopoly bourgeoisie 
headed by Brezhnev. Therefore, the trust is an entity that uni¬ 
fies the state organ and the monopoly organization and is an im¬ 
portant form in the administrative system of state monopoly 
capitalism. 

Apart from the fact that the trust is a monopoly organization, 
the state enterprise of Soviet revisionism has long been capital¬ 
istic. In the state enterprise of Soviet revisionism, the working 
masses have long been reduced from being the masters of the 
enterprise to slaves of the bureaucratic monopoly bourgeoisie. 
The leaders of the enterprise are the agents of the leadership 
group of Soviet revisionism. According to the codes of the 
"Regulations of Socialist State Production Enterprises," the 
manager of the enterprise exercises the "power to recruit and 
dismiss personnel and makes decisions regarding rewards and 
punishment for the enterprise's personnel." He has the author¬ 
ity to determine the wages and bonuses of the staff and workers 



Social Imperialism as Imperialism 205 


and to resell or rent the enterprise's means of production. In 
sum, even without the trust, the manager and the plant director 
are already rulers possessing all the power in state enterprises, 
and the broad masses of workers are already slaves of the bu¬ 
reaucratic monopoly bourgeoisie. Now, with the trust as a mo¬ 
nopoly organization, the bureaucratic monopoly bourgeoisie can 
further strengthen its control over the pulse of the national 
economy in the Soviet Union. This new-style big bourgeoisie, 
using the state enterprises and trusts it controls and availing 
itself of the name of the state, has used taxation and surren¬ 
dered profits to unrestrainedly plunder the fruits of the Russian 
worker's labor in order to support the extravagant lives of a 
few monopoly capitalists, suppress the Soviet people, launch 
aggression, and pursue its social imperialist policy. 

While the renegade clique of Brezhnev was developing monop¬ 
oly organizations in manufacturing and mining in a big way, var¬ 
ious types of monopoly organizations were also developed in ag¬ 
riculture. They included: (1) the agricultural trust which is a 
trust organization of specialized state farms such as the poul¬ 
try, livestock, and vegetable trusts; (2) the agricultural trust 
which is an organization of several state farms or collective 
farms or between state farms and collective farms; and (3) the 
agricultural-industrial complex, also called the agricultural- 
industrial joint enterprise which is a trust by which the agricul¬ 
tural enterprise directly operates processing plants for agri¬ 
cultural produce. Through these agricultural monopoly organi¬ 
zations, the bureaucratic monopoly bourgeoisie strengthened 
their control and plundered the broad Soviet countryside. 

The "Shchekino Experiment” W as the Model of 
the Oppressive System Implemented by Soviet 
Revisionist Monopo ly Enterprise 

The neomonopoly capitalist bureaucrats, having put the na¬ 
tional economy under their control and totally restored the cap¬ 
italist hired-labor system, stepped up their exploitation and op¬ 
pression of the broad masses. Since 1967, the so-called "Shche- 






206 Fundamentals of Political Economy 


kino experiment” has amply confirmed the restoration of cap¬ 
italism in the Soviet Union. 

Shchekino was a chemical enterprise located near Moscow 
which had more than 7,000 employees and produced chemi¬ 
cal fertilizers and other chemical products. In August 1967, tai¬ 
lored to the demands of the Soviet revisionist bureaucratic mo¬ 
nopoly bourgeoisie, the enterprise began a so-called "economic 
experiment to strengthen the employees’ concern for increasing 
production, raise labor productivity, and reduce the number of 
personnel.” This "experiment” continuously increased the 
workers' labor intensity through the measures of concurrent 
jobs, combined categories of work, and expanded scopes of ser¬ 
vice and achieved the goal of reducing personnel and raising la¬ 
bor intensity. At the same time, it was decided to freeze the 
enterprise's total wage fund for several years, and the wage 
fund thus saved by personnel retrenchment was left largely to 
the discretion of a handful of the privileged class in the enter¬ 
prise. Brezhnev boasted that the "experiment” was a perfect 
remuneration model, and it has since been disseminated 
throughout the Soviet Union. 

The heart of the "Shchekino experiment" is to "reduce the 
labor force to increase labor productivity" in order to push the 
enterprise to "tap its potential." How was labor productivity in¬ 
creased ? The "Shchekino experiment" proved that it could 
be achieved by increasing labor intensity. According to the sta¬ 
tistics of June 1971, since the Shchekino chemical joint en¬ 
terprise implemented this "experiment," more than 1,000 
workers had been dismissed, or more than one-seventh of the 
total staff and workers. Of these, 68 workers, or 6 percent, 
were dismissed due to either greater mechanization or the con¬ 
sequent reduction in labor intensity; while more than 90 percent 
of the workers were dismissed because of an increase in labor 
intensity. Marx pointed out, "The crucial problem of the whole 
capitalist production system is: to increase uncompensated la¬ 
bor through such measures as prolonging the workday, increas¬ 
ing productivity, and consequently making labor power more in¬ 
tense." (3) In the imperialist stage, the extraction of unpaid 



Social Imperialism as Imperialism 207 


labor from the worker by monopoly capital was increased by a 
hundred times. In capital imperialist countries, monopoly cap¬ 
ital used so-called "scientific management methods" such as 
the 'Taylor system" to force the worker to increase labor in¬ 
tensity by a big margin in order to increase the extraction of 
surplus value. The "Shchekino experiment" promoted by the 
renegade clique of Soviet revisionism was a carbon copy of the 
’Taylor system" which was strongly denounced by Lenin as a 
"blood- and sweat-sucking system." Its intent was to force one 
Russian to do several workers’ jobs and maliciously extract 
more surplus labor and surplus value from him. 

As of July 1971, the 121 enterprises which implemented the 
"Shchekino experiment" had already dismissed 65,000 peo¬ 
ple. At present, heavy unemployment has begun to emerge in 
the Soviet Union. This economic system of state monopoly cap¬ 
italism of Soviet revisionism has already pushed the relation¬ 
ship between capital and hired labor to its limit. It has already 
met, and will continue to encounter, strong opposition from the 
Soviet working class and the broad masses of laboring people. 

Sovie t Revisionist "New Interna ti onal Relations" 

Is Another Name for Neocolonialism 


Econ omi c Unification Is a Major Measure of the 
Neocolonialism Launched by Soviet Revisionism 


To pursue high monopoly profits, monopoly capital, while in¬ 
creasing exploitation of the people at home, inevitably expands 
externally. Through capital export and by adopting colonial pol¬ 
icies, it plunders and enslaves the people of other countries. 
The monopoly capitalism of Soviet revisionism naturally is not 
satisfied with the exploitation of the Soviet workers and peas¬ 
ant masses and inevitably extends its paws to foreign countries. 
The first to be so affected are the "fraternal countries" of that 
"big socialist family." 

The renegade clique of Brezhnev trapped some Eastern Euro¬ 
pean countries and Mongolia into a so-called "big socialist family." 



208 Fundamentals of Political Economy 


The nominal relations between Soviet revisionism and the "fra¬ 
ternal countries" of this big family are "new socialist interna¬ 
tional relations." Actually, it is a cat and mouse relationship be¬ 
tween the imperialist suzerain and the colonies. The Soviet 
Union resorted to the most brutal and vicious means to tightly 
control these countries. Militarily, it stationed sizable armed 
forces in some countries in line with the "Warsaw Pact" and 
other bilateral agreements. It even openly mobilized several 
hundred thousand troops to invade Czechoslovakia. Politically, 
it bribed, sabotaged, and even used bayonets to set up puppet 
governments. Economically, it pushed the so-called "economic 
unification" through the "Council for Mutual Economic Aid" 
(COMECON). Some Eastern European countries and Mongolia 
are virtually under colonial rule and suffer shocking exploita¬ 
tion. 

The intent of the "economic unification" promoted by the so¬ 
cial imperialism of Soviet revisionism is to dissolve the na¬ 
tional economic systems of COMECON members, create a 
monolithic, lopsided colonial economy, and "unify" the terri¬ 
tories, populations, and resources of these countries with the 
social imperialism of Soviet revisionism. Soviet revisionism's 
"international division of labor" and "production specialization" 
are both subject to "economic unification," serving the purpose 
of realizing the above-mentioned "economic unification." 

One of the means used by Soviet revisionism to enslave the 
"fraternal countries" in the name of "economic unification" is 
to destroy the fuel and raw material industries of the COMECON 
member countries and to achieve a high degree of monopoly by 
Soviet revisionism. According to statistics released by COME¬ 
CON and official Soviet revisionist sources, in the 1966-1970pe- 
riod, the percentages of imported fuel and raw materials going 
from the Soviet revisionists to Bulgaria, Hungary, the Ger¬ 
man Democratic Republic, Poland, and Czechoslovakia were: 

93 percent for petroleum, 61.9 percent for coal, 86.8 percent 
for iron ore, 97.5 percent for pig iron, and 64.3 percent for raw 
cotton. The high degree of monopoly by the Soviet revisionists 
in the supply of fuel and raw materials to the member countries 



Social Imperialism as Imperialism 209 


determined the fate of these countries. 

Another means used by Soviet revisionism to enslave the 
"fraternal countries" in the name of "economic unification" 
was to force the member countries to specialize in products 
required by the Soviet revisionists. For example, Poland was 
forced to develop the shipbuilding industry, Czechoslovakia to 
specialize in railway rolling stock, the German Democratic 
Republic to produce mining equipment, Bulgaria to produce 
vegetables and fruits, and Mongolia to specialize in the live¬ 
stock industry to provide meat for the Soviet revisionists. This 
way, the "fraternal countries" were transformed into affiliated 
processing plants, orchards and vegetable gardens, and live¬ 
stock ranches for Soviet revisionism. 

To accelerate "economic unification" and more effectively 
control the member countries, Soviet revisionism set up a se¬ 
ries of "supranational organizations" such as the "International 
Metallurgical Industry Cooperative Organization," the "Interna¬ 
tional Chemical Engineering Industry Cooperative Organization," 
the "International Economic Cooperative Bank," and the 'Inter¬ 
national Investment Bank." These "supranational organizations" 
are actually international monopoly organizations controlled by 
the state monopoly capitalism of Soviet revisionism. Through 
them, the vital departments of the national economies of the 
member countries are controlled by Soviet revisionism. 

When Soviet revisionism had its hands at the throats of the 
"fraternal countries," coercing them to lopsidedly develop their 
economies in conformity with Soviet needs, it could plunder 
them through trade using monopoly and colonial rules. Accord¬ 
ing to Soviet revisionist magazines, in 1970 Soviet revisionism 
accounted for 80 percent of Mongolia's total foreign trade, more 
than 50 percent of Bulgaria's, about 40 percent of that of the 
German Democratic Republic’s, and about one-third of Po¬ 
land's, Hungary's, and Czechoslovakia's. Taking advantage of 
its dominant position, Soviet revisionism has cruelly exploited 
these countries by trading with them on terms unfavorable to 
them. The Soviet Union traded Mongolia one bicycle for four 
horses and one toy lamb for one live lamb. The Soviet import 



210 Fundamentals of Political Economy 


price for electric locomotives from Czechoslovakia was two- 
fifths lower than the import price of the same item from West 
Germany. But the export price of iron ore from the Soviet re¬ 
visionists to Czechoslovakia was more than twice as high as 
that to West Germany. The atomic reactors sold by Soviet re¬ 
visionism to some Eastern European countries were at a price 
four times higher than in the international market. A former 
member of the Planning Commission of the German Demo¬ 
cratic Republic complained that the annual loss suffered by his 
country from trading with the Soviet Union amounted to 2 billion 
marks. 

Like capital imperialism, the social imperialism of Soviet 
revisionism exported capital to some Eastern European coun¬ 
tries and Mongolia calling it "aid." Up to early 1971, Soviet re¬ 
visionism exported capital totaling 2.15 billion rubles as long¬ 
term "loans." Through capital export, not only were large sums 
of money extracted in the form of interest, but the direction of 
development in the recipient countries was also controlled. 
Moreover, availing themselves of this exporting, they dumped 
large quantities of unmarketable commodities and equipment 
at high prices to obtain high monopoly profits. 

While exporting capital, the Soviet revisionists, taking advan¬ 
tage of their predominate position in "economic unification" and 
under the pretext of the increasing demands by member coun¬ 
tries for Soviet exports of raw materials, compelled some coun¬ 
tries to provide the funds and manpower for the construction of 
Soviet plants and the exploration of Soviet mines. They engaged 
in naked plundering. For example, in 1966 Czechoslovakia was 
forced to furnish 500 million rubles to the Soviet revisionists 
for the purpose of buying steel pipes and petroleum equipment 
to develop the Tuimen oilfield. In 1968, Czechoslovakia was 
again forced to furnish large quantities of trucks and large cal¬ 
iber piping to construct a pipeline for Siberian natural gas. So¬ 
viet revisionism even'drafted several tens of thousands of la¬ 
borers from Bulgaria to do hard labor, thus directly exploiting 
their surplus labor. 

Lenin once denounced the old czar as "treating his neighboring 



Social Imperialism as Imperialism 211 


countries according to the principle of prerogative under serf¬ 
dom." (4) The conduct of Soviet revisionism toward its neighbor¬ 
ing countries today is even worse than that of the old czar. The 
so-called "international division of labor" and "production spe¬ 
cialization" in the service of Soviet revisionist "economic uni¬ 
fication" is a "division of labor" between the suzerain and its 
colonies like the one advocated by the old Japanese militarism 
under the slogan of "industrial Japan, agricultural China." The 
"big socialist family" of Soviet revisionism is merely a differ¬ 
ent name for an imperialist sphere of influence like the "new 
European order" of Hitler’s Germany and Japanese militarism's 
"East Asian Great Co-Prosperity Sphere." (4) 

Car rying out a Colonial Expansion Policy in Asia , 

Africa, and Latin America under the Name of "Aid" 


Because Soviet revisionism has transformed into social im¬ 
perialism, it must also be subject to the laws governing impe¬ 
rialism. It naturally is not satisfied with colonial rule within 
the "big socialist family," but inevitably tries to monopolize 
more of the world's markets for its commodities, raw materi¬ 
als, and investment. Asia, Africa, and Latin America, with 
abundant resources and backward economies, have been the nat¬ 
ural objects of Soviet revisionist colonial expansion. 

The renegade clique of Soviet revisionism says it offers 
"aid" to Asia, Africa, and Latin America. But in fact, under 
the guise of "aid," it attempts in every way to bring some coun¬ 
tries of these regions into its own sphere of influence and to 
struggle with United States imperialism to win over the third 
countries. 

"Soviet aid" is a trojan horse which breaks its way into the 
"aid" recipient countries on all sides, carrying harsh political 
and economic conditions. It consists mainly of "military aid," 
namely, the sale of outdated military hardware. By this means, 
it controls and interferes with the "aid" recipient countries 
militarily, politically, and economically. Soviet revisionism 
annually gives one billion rubles in aid to regions in Asia, 





212 Fundamentals of Political Economy 


Africa, and Latin America: 30 percent as "economic aid" and 
70 percent as "military aid." The key areas are the Middle 
East and the Persian Gulf area; next in line is the South Asian 
subcontinent. Because the Middle East and the Persian Gulf 
areas possess immense strategic value and are rich in oil, So¬ 
viet revisionism tries very hard in many countries in these 
areas to establish naval and air bases, control the prospecting, 
extracting, refining, and transportation of oil, and monopolize 
the purchase of oil through "Soviet aid." The South Asian sub¬ 
continent possesses not only important strategic value but also 
abundant natural and human resources. Soviet revisionism has 
plundered the resources of these areas and interfered with their 
politics (through exports of military hardware and capital at un¬ 
favorable terms of trade) while waiting for favorable opportuni¬ 
ties to establish military bases. 

In the South Asian subcontinent, India has received the largest 
share of "Soviet aid." Her economic pulse has been in the hands 
of Soviet revisionism. As of the end of 1970, the percentages of 
Indian industrial production coming from enterprises receiving 
Soviet "aid" were as follows: 30 percent of its steel output, 60 
percent of its oil refining capacity, 85 percent of its heavy ma¬ 
chines, 20 percent of its electricity output, 30 percent of its oil 
products, and 60 percent of its electricity-generating equip¬ 
ment. In the "aid assisted" projects, engineering designs were 
monopolized and totally controlled during the construction phase 
by Soviet revisionism. Even in operation, it was still impossi¬ 
ble for India to be independent of the control of Soviet revision - 
ism. For the maintenance of equipment and the supply of parts 
and important materials, it had to rely on the Soviet revision¬ 
ists. In addition, Soviet revisionism further controlled India’s 
production by demanding that "Soviet aid" be repaid in kind. 
Some of India's leather shoe factories, garment factories, dye 
factories, leather factories, and light bulb factories were set up 
to meet the Soviet Union’s demand. The output of these plants 
was not for India's consumption, but for export to the Soviet 
Union to repay debts. It was in these ways that Soviet revision¬ 
ism sought to take advantage of India's raw materials and cheap 



Social Imperialism as Imperialism 213 


labor and turn India into its affiliated processing plant under 
the guise of ’'aid.” The Indian press exclaimed, 'India is an 
egg that sits snugly in the Russian basket." 

The renegade clique of Soviet revisionism boasts that only by 
relying on Soviet "aid" and entering into "international division 
of labor" "can the developing countries smoothly attain real 
political and economic independence and be capable of resisting 
imperialist power." This is indeed the greatest lie ever heard. 
Even Soviet revisionism had to admit that the division of labor 
between her and the developing countries was "strongly affected 
by the preexisting division of labor." Its characteristic is "the 
exchange of industrial products, especially machinery for raw 
materials, tropical produce and fuel." Over 95 percent of the 
Soviet revisionists' imports of rubber and 92 percent of their 
imports of cotton come from Asia, Africa, and Latin America. 
The Soviet revisionists trade their outdated machinery for oil 
from the Middle East, copper from Chile, tin from Bolivia, 
meat from East Africa, and uranium from Somalia. Is it not 
true that this pattern of "international division of labor" be¬ 
tween the "industrial Soviet Union" and "agricultural Asia, Af¬ 
rica, and Latin America" is typical of the division of labor be¬ 
tween a suzerain and its colonies ? 

The renegade clique of Soviet revisionism boasts that the in¬ 
terest on its loans, 2.5 percent per annum, is much lower than 
that charged by the capital imperialist countries and that the 
loans are "selfless aid." In fact, Soviet revisionist loans are 
a disguised form of usury. The usurious interest rate was con¬ 
cealed in the high prices charged for goods supplied. The So¬ 
viet loans extended to the countries of Asia, Africa, and Latin 
America had to be used for purchasing Soviet goods, consisting 
primarily of outdated weapons, old equipment, and unmarketable 
commodities. Not only were the products poor in quality and 
backward in technology, but they were also higher in price, 
some 20 percent, 30 percent, or even 100 percent higher than 
the prices on the international market. In addition, the Soviet 
revisionist social imperialists often pressed the debtor coun¬ 
tries for payment, compelling them to supply the Soviet Union 



214 Fundamentals of Political Economy 


with certain raw materials. It was reported that the Soviet 
Union had signed an agreement with a Middle Eastern country 
demanding that the latter pay its debts to the former in oil from 
1973 through 1980 at prices 20 percent below the international 
market price. What is labeled as "selfless aid" is in fact cruel 
exploitation. 

Verbally, the renegade clique of the Soviet revisionists have 
promised "total support" for the revolutionary struggles of the 
peoples in Asia, Africa, and Latin America. In actuality, they 
have colluded with all the world’s most reactionary powers to 
undermine the revolutionary struggles of these peoples and have 
pursued neocolonialism. They have supplied money and arms 
to help the reactionary groups of various countries massacre 
revolutionaries. They have dismembered Pakistan, supported 
the traitor clique of Lon Nol, engaged in sabotage in many coun¬ 
tries of Asia, Africa, and Latin America, used all means to sup¬ 
port the reactionary groups of various countries in Asia, Africa, 
and Latin America in order to extinguish the people’s armed 
struggle, suppressed national liberation movements, and acted 
as the military police of the world. 

Soviet Revisionist Imperialism Is the Eve 
of a Second October Revolution 

The Extrem e Parasitic and Decaying Nature 
of Soviet Revisionist Social Imperialism 


Soviet revisionist social imperialism is monopoly capitalism. 
It cruelly exploits and oppresses its laboring people and fero¬ 
ciously plunders and enslaves the peoples of other countries, 
especially the broad masses in Asia, Africa, and Latin America. 
It is even worse than capital imperialism. However, like all 
imperialism, Soviet revisionist state monopoly capitalism is 
just a paper tiger. Because all monopoly capitalism is neces¬ 
sarily at the same time both parasitic and decaying capitalism, 
it is moribund capitalism. Soviet revisionist state monopoly 
capitalism is no exception. Whether in its economic or political 



Social Imperialism as Imperialism 215 


aspects, Soviet revisionist state monopoly capitalism reveals 
in every possible way its extreme parasitic and decaying na¬ 
ture. It will soon be sent to a museum by the people of the So¬ 
viet Union and the world. 

The extreme decaying nature of Soviet revisionist social im¬ 
perialism has been primarily revealed in its stagnating eco¬ 
nomic development. The production relation of Soviet revision¬ 
ist state monopoly capitalism seriously hinders the development 
of social productive forces. When the Soviet Union was a so¬ 
cialist country, its industrial production in the ten-year period 
of 1929-1938 increased by leaps and bounds at an average annual 
rate of 17.4 percent. When the Soviet Union turned to social 
imperialism, the average annual growth rate of industrial pro¬ 
duction in the ten-year period of 1961-1970 declined sharply from 
8.6 percent to 7.7 percent in 1971 and below 7 percent in 1972. 
Under the rule of the renegade clique of Khrushchev and Brezh¬ 
nev, agricultural production in the Soviet Union was even worse. 
Serious agricultural crises erupted many times and large quan¬ 
tities of food had to be imported from the United States, Canada, 
and Australia. Owing to industrial recession, declining agricul¬ 
tural output, dwindling livestock, and inflation, severe short¬ 
ages of commodities and tight market supplies were reported. 
The livelihood of the laboring people was impoverished. 

The extreme decaying nature of social imperialism has also 
been revealed in its frantic efforts at military expansion and 
war preparations. To pursue external aggression and expan¬ 
sion, the bureaucratic monopoly bourgeoisie represented by the 
Brezhnev renegade clique has inevitably followed the Hitler- 
type policy of "more guns and less butter" to militarize the na¬ 
tional economy. According to estimates, the military expendi¬ 
tures of the Soviet revisionists were three to four times higher 
than those admitted by official sources. The average annual 
military expenditure since the 1970s has reached 80 billion dol¬ 
lars, or more than 30 percent of the state budget. To fight for 
naval supremacy, Soviet revisionism has greatly expanded its 
navy. Military expenditure on battleships has increased sharply 
year after year. According to estimates, the annual average 



216 Fundamentals of Political Economy 


expenditure in this area in the 1960s was 2 billion dollars. In 
1970, it was increased to 3 billion dollars, or 0.9 billion dol¬ 
lars more than the United States spent on battleships in the 
same year. When large quantities of social wealth are not used 
to expand production to improve people's livelihood, but instead 
to expand armaments, prepare for wars, and pursue external 
aggression and expansion, it constitutes the most pronounced 
manifestation of social imperialism's decaying nature. 

The extreme decaying nature of Soviet revisionist social im¬ 
perialism has also been revealed in its total political reaction 
and serious deterioration of social life. Chairman Mao pointed 
out that "the present Soviet Union is a dictatorship of the bour¬ 
geoisie, a dictatorship of the big bourgeoisie, a German fascist- 
style dictatorship, a Hitler-type dictatorship." (5) Chairman 
Mao's analysis profoundly revealed the class nature and social 
origin of Soviet revisionist social imperialism, exposing its 
fascist nature and the lie of the Soviet revisionist renegade 
clique that the Soviet Union is "a country for all the people." 
When the Soviet revisionist renegade clique came to power, it 
tried very hard to strengthen its fascist dictatorship organ. It 
not only used the most modern scientific and technological 
means to equip its police and intelligence agencies to strengthen 
its suppression of the people, but also widely stationed secret 
agents in factories, farms, organizations, and associations to 
keep the masses in line. Today's Soviet Union is under a reign 
of white terror. Whoever dares to show discontent and resist 
the Brezhnev clique is watched, tailed, interrogated, or sent to 
a "mental asylum," concentration camp, or prison for the al¬ 
leged crime of "slandering the Soviet Union or sabotaging the 
social order." 

In addition to suppressing the people with naked violence, the 
renegade clique of Brezhnev has also used subtle measures to 
undermine the people by introducing the rotten culture, vulgar 
arts,and life-style from capital imperialist countries to poison 
the Soviet people. All the most ideologically backward, reac¬ 
tionary, and rotten things in the world have managed to find 
fertile soil in Soviet revisionist social imperialism. 



Social Imperialism as Imperialism 217 


Another manifestation of the extreme parasitic and decaying 
nature of Soviet revisionist social imperialism has been the 
much higher income of the bureaucratic monopoly bourgeoisie 
represented by the Brezhnev renegade clique than that received 
by the ordinary workers and peasants. The difference in in¬ 
come of more than 10 times, or even 100 times, was obtained 
through high wages, high bonuses, and various types of personal 
subsidies. This class has also taken advantage of its special 
economic and political privileges to serve its own selfish inter¬ 
ests, engaging in corruption and leading extravagant, parasitic 
lives. Closely related to this bureaucratic monopoly bourgeoisie 
is a revisionist intellectual aristocracy. This revisionist in¬ 
tellectual aristocracy serves the bureaucratic monopoly bour¬ 
geoisie in the ideological sphere and leads an equally sensual, 
parasitic life. Sholokhov, an author known for his writing 
on the terror of war and bourgeois pacifism, became a billion¬ 
aire. He owned not only a private car, but also a private air¬ 
plane. His bank deposits were so huge that even he himself lost 
track of them. 

In sum, a rotten atmosphere characteristic of a decaying so¬ 
cial system has pervaded the economic, political, and cultural 
spheres of Soviet revisionist social imperialism. This social 
system, like the poisonous fungus growing on a pile of cow dung, 
is devoid of vitality. 

A New Historical Period of Opposing United States 
Imperialism and Soviet Revisionism Has Already Begun 


The bloodstained oppression and exploitation of the laboring 
people at home, the cruel colonial rule over countries in the 
,f big socialist family," and the aggressive expansion in various 
parts of the world have inevitably intensified the various con¬ 
tradictions which Soviet revisionist social imperialism faces 
at home and abroad. 

Wherever there is oppression, there is resistance. The op¬ 
pression and exploitation of the laboring people of the Soviet 
Union by the Soviet revisionist bureaucratic monopoly bour- 





218 Fundamentals of Political Economy 


geoisie inevitably meets the resistance of the Soviet laboring 
people. 

The opposition of the Soviet people to the bureaucratic mo¬ 
nopoly bourgeoisie takes many varied forms. The workers of 
many areas in the Soviet Union have resorted to slowdowns, 
negligence of duty, and strikes to show their discontent and op¬ 
position to the ruling clique of Soviet revisionism. In many 
places, the revolutionary masses have demonstrated many 
times, opposing the fascist dictatorship of Soviet revisionist 
authority. In various areas of the Soviet Union, people have 
frequently published underground materials, distributed leaf¬ 
lets to protest the reactionary rule of the Soviet revisionist 
renegade clique, and exposed the hidden secrets of the Soviet 
revisionist privileged class. The heroic children of the October 
Revolution will never submit to the reactionary rule of the new 
czar of Soviet revisionism. Under the dark rule of the old czar, 
Lenin confidently pointed out that ’the proletariat of Russia 
will spare no sacrifice to free the whole of mankind from the 
humiliation of the czarist monarchy." (6) Today, the Soviet 
proletariat, peasants, and revolutionary intellectuals must an¬ 
swer Lenin's call and work for the overthrow of the new czar 
and the reestablishment of proletarian dictatorship. 

Second, the contradiction between the countries and people 
being persecuted by Soviet revisionist neocolonialism and So¬ 
viet revisionist social imperialism has increasingly intensified. 

The neocolonialist policy of "economic unification" pursued 
by Soviet revisionism and the enslavement and plundering of 
some Eastern European countries and Mongolia has furthered 
the development of antiplundering and antidomination struggles 
in these countries. The flagrant armed occupation of Czecho¬ 
slovakia by the Soviet revisionists opened up the watchful eyes 
of some Eastern European countries and Mongolia and strength¬ 
ened their struggle against Soviet revisionist social imperial¬ 
ism. Today, Eastern Europe is like a powder keg which may 
explode at some future date. The invasion of Prague by Soviet 
revisionist tanks did not demonstrate the might of the Soviet 
revisionist social imperialism; on the contrary, it was an omen 



Social Imperialism as Imperialism 219 


of the beginning of the Soviet revisionist colonial empire's col¬ 
lapse. 

Under the guise of "aid," Soviet revisionism frantically in¬ 
filtrates, plunders, and invades the countries of Asia, Africa, 
and Latin America and sets itself in opposition to the people 
of Asia, Africa, and Latin America. The demonic paws of So¬ 
viet revisionist social imperialism have reached some coun¬ 
tries in the Mediterranean and the Indian Ocean by establishing 
military bases, obtaining port privileges, and controlling and 
interfering with internal politics and foreign affairs. The Soviet 
fishing fleet cruises freely around the world, plundering and 
destroying fishing resources and encroaching on the territorial 
waters of other countries. The people of Asia, Africa, and 
Latin America are becoming more aware of the reactionary 
nature of Soviet revisionist social imperialism. They have sol¬ 
emnly pointed out that the Soviet revisionist renegade clique, 
which has betrayed "the world’s revolutionary peoples," is a 
"neocolonialist" and "another public enemy of the people of the 
world." The countries and people who are subject to aggres¬ 
sion, control, interference, and ill-treatment from Soviet revi¬ 
sionism and United States imperialism are uniting to victori¬ 
ously launch an anti-imperialist and anticolonial struggle aimed 
particularly at the two nuclear superpowers, the United States 
and the Soviet Union. 

Third, the frantic external aggression and expansion of Soviet 
revisionist social imperialism and its fight for commodity mar¬ 
kets, supplies of raw materials, and investment outlets has in¬ 
tensified the contradictions among the imperialist countries to 
an unprecedented degree, especially those between Soviet revi¬ 
sionism and United States imperialism; the two nuclear super¬ 
powers wrestle for world hegemony. 

Today, it is primarily the two nuclear superpowers, the United 
States and the Soviet Union, who are vying for world hege¬ 
mony. The strategic point they are fighting for is in Europe be¬ 
cause Europe is the heart of the capitalist world. The West al¬ 
ways wants to push Soviet revisionism to expand eastward and 
divert this flood of disaster to China. But China is a tough piece 



220 Fundamentals of Political Economy 


of meat that has been resisting biting for many years. At pres¬ 
ent, Soviet revisionism, pursuing the strategy of feint attack, 
has stepped up its struggle in Europe. The Soviet revisionists 
have stationed two-thirds of their army and air force to the 
west of the Urals. The Soviet revisionist navy has expanded 
rapidly in the recent decade. In 1970, it dispatched more than 
200 battleships to three oceans and eight seacoasts in a global 
exercise to show off its naval prowess and stepped up its ex¬ 
pansion toward the Mediterranean and the Indian Ocean. The 
struggle for world hegemony between the United States and the 
Soviet Union is the source of world unrest. The struggle has 
encountered intense resistance from the Third World and cre¬ 
ated increasing displeasure in Japan and the West European 
countries. The expanding internal and external difficulties of 
the two powers put them in an increasingly unenviable and help¬ 
less situation. 

Imperialism means aggression and war. Soviet revisionist 
social imperialism is stationing troops along China’s borders, 
attempting to turn China into its colony. We must follow Chair¬ 
man Mao's teachings to ,T be prepared for war, be prepared for 
natural disasters, and do everything for the people" and to "dig 
deep caves, increase grain stocks, and never be aggressive" 
in order to strengthen preparations against aggressive wars 
and be on the alert for the outbreak of an imperialist world war, 
especially surprise attacks from Soviet revisionist social im¬ 
perialism. We must resolutely, thoroughly, cleanly, and totally 
annihilate all enemies who dare to invade us. 

Chairman Mao pointed out, 'The revolutionary people of the 
world will never forgive the numerous evil and scandalous 
deeds committed by Soviet revisionism in collusion with United 
States imperialism. The peoples of various countries are 
standing up. A new era opposing United States imperialism and 
Soviet revisionism is dawning." (7) In the struggle against the 
hegemony mentality and power politics, the Third World is 
awakening and growing. This is a big event in contemporary 
international relations. The characteristic of the contemporary 
international situation is perpetual chaos. ’.’Strong winds fore- 



Social Imperialism as Imperialism 221 


tell the coming storm.” This is precisely the contemporary 
version of the world's basic contradictions which Lenin ana¬ 
lyzed. All countries subject to aggression, sabotage, interfer¬ 
ence, control, and ill-treatment from imperialism have become 
increasingly united, forming a broad united front and strength¬ 
ening their struggle against imperialism and new and old colo¬ 
nialism, especially against the hegemony mentality of the two 
superpowers, the United States and the Soviet Union. Countries 
must be independent, nations must be liberated, and people must 
make revolution. These are irresistible historical tides which 
will sweep away the United States and the Soviet Union. 

On the eve of the victory of the Anti-Japanese War, Chairman 
Mao prophesied: "The world will advance and never regress. 
Naturally, however, we should be prepared to anticipate possi¬ 
ble temporary, and even serious, historical detours. There are 
still very strong reactionary influences in many countries that 
are reluctant to see their own people and peoples of other 
countries achieve unity, progress, and liberation. Whoever ig¬ 
nores these factors will surely commit serious political errors. 
However, the general tendency of history has been determined 
and cannot be changed.” (8) The presence of Soviet revisionist 
social imperialism is a temporary historical detour. But, like 
capital imperialism, it is weighed down by all sorts of contra¬ 
dictions: The contradiction between the Soviet revisionist bu¬ 
reaucratic monopoly bourgeoisie, on the one hand, and the prole¬ 
tariat and all the laboring people of the Soviet Union, on the 
other; the contradiction between Soviet revisionist social im¬ 
perialism and the people of the colonies and the whole world; 
and the contradiction between Soviet revisionist social imperi¬ 
alism and capital imperialism, especially United States impe¬ 
rialism. All of these are becoming increasingly acute. Be¬ 
cause of the existence and development of these contradictions, 
Soviet revisionist social imperialism will surely be discarded 
in the museum of history by the people of the Soviet Union and 
the world. Lenin asserted, ’Imperialism is the eve of socialist 
revolution.” (9) Soviet revisionist social imperialism is the eve 
of a second socialist October Revolution. Chairman Mao pointed 



222 Fundamentals of Political Economy 


out: "The Soviet Union is a socialist country and the Communist 
Party of the Soviet Union was created by Lenin. Although the 
leadership of the Party and government of the Soviet Union is 
now usurped by revisionists, I would advise our comrades to 
firmly believe that the broad Soviet people, Party members, 
and cadres are good people and want revolution. Revisionist 
rule will not last long." (10) Under the great banner of Lenin¬ 
ism and with the support of the people of the world, the Soviet 
people, who have a glorious revolutionary tradition, will even¬ 
tually bury Soviet revisionist social capitalism. Their success 
will once again allow the brilliance of proletarian dictatorship, 
socialism, and Marxism-Leninism to shine over the land of the 
Soviet Union. 

Let the ruling class tremble before the communist rev¬ 
olution. The proletarians have nothing to lose but their 
chains. They have a world to win. 

Workingmen of all countries, unite! ( 11 ) 

Major Study References 

Lenin, "On the Task of the Third International," Complete 
Works of Lenin , Vol. 29. 

Chairman Mao, "Talk with American Correspondent Anna 
Louise Strong." 

Chairman Mao, "A Congratulatory Telegram to the Fifth 
Congress of the Labor Party of Albania," October 25, 1966. 

Review Problems 


1. How does one recognize the nature of Soviet revisionist 
social imperialism from the basic economic characteristics 
of imperialism ? 

2. Why will the rule of the Brezhnev renegade clique in the 
Soviet Union not be long ? 



Social Imperialism as Imperialism 223 


Notes 


1) Imperialism, the Highest Stage of Capitalism, Se- 
lected Works of Lenin, Vol. 2, Jen-min ch'u-pan-she, 1972, 
p. 827. 

2) "Resolutions on the Present Situation. Seventh National 
Congressional Conference (April Congressional Conference) of 
the Social Democratic Labor Party (Bolshevik) of Russia," 
Co mplete Works of Lenin , Vol. 24, p. 277. 

3) Marx, Critique of the Gotha Program , Selected Works of 
Marx and Engels, Vol. 3, Jen-min ch'u-pan-she, 1972, p. 17. 

4) "On the National Superiority Complex of the Great Rus¬ 
sian People," Selected Works of Lenin , Vol. 2, Jen-min ch’u- 
pan-she, 1972, p. 611. 

5) A Talk by Chairman Mao on May 11, 1964. Quoted in 
Jen-min jih-pao [People’s Daily], April 22, 1970. 

6) "War and Russia’s Social Democratic Party," Complete 
Works of Lenin , Vol. 21, p. 13. 

7) Quoted from Jen-min jih-pao [People’s Daily], April 28, 
1969. 

8) "On Coalition Government," Selected Works of Mao Tse- 
tung , Vol. 3, Jen-min ch'u-pan-she, 1968, p. 932. 

9) "Preface to Imperialism, the Highest Stage of Capital- 
ism, Selected Works of Lenin, Vol. 2, Jen-min ch'u-pan-she 
1972, p. 730. 

10) Quoted from Jen-min jih-pao [People’s Daily], June 11, 
1967. 

11) Communist Manifesto , Selected Works of Marx and 
Engels, Vol. 1, Jen-min ch'u-pan-she, 1972, pp. 285-86. 





12 

Socialist Society Ushers in 
a New Era in Human History 


Socialist Society and Proletarian Dictatorship* 


More than a hundred years ago, Marx and Engels, the teachers of 
the worldwide proletarian revolution, analyzed the emergence, de¬ 
velopment, and decline of capitalist production relations and con¬ 
cluded scientifically that the proletariat would certainly overthrow 
the bourgeoisie and all exploiting classes, that proletarian dictator¬ 
ship would certainly replace bourgeois dictatorship, that socialism 
would certainly replace capitalism, and that communism would 
certainly be realized in the end. They called on the proletariat of 
the world to unite with the broad labor ing masses and take up ar ms 
to struggle fearlessly for the demolition of bourgeois state machine¬ 
ry, the establishment of proletarian dictator ship, and the realiza¬ 
tion of socialism and communism. In the past hundred years and 
more, the proletariat of the world has marched forward persistently 
under the brilliance of Marxism without fearing sacrifice. They 
have turned the scientific socialist ideal into a shining reality over 
a large area of the world. "The socialist system will finally 
replace the capitalist system. This is an objective law not sub¬ 
ject to the change of human will." (1) The socialist society un¬ 
der proletarian dictatorship and established through violent 

*She-hui-chu-i she-hui k'ai-ch'uang le jen-lei li-shih ti hsin 
chi-yuan — she-hui-chu-i she-hui ho wu-ch'an-chieh-chi chuan- 
cheng. 


224 



The New Era of Socialist Society 225 


revolution is a fundamental negation of the exploitative capital¬ 
ist system and all exploitative systems. It ushers in a new era 
of human history. 

Proletarian Revolut ion and Proletarian Dictatorship 
Are the Prec onditions for the Emergence 
of Socialist Pro duction Relations 

S ocialist Production Relations 

Cannot Eme rge withi n the Capitalist Society 


The transition from one societal form to another in human 
society is impelled by the basic social contradiction, namely, 
the contradiction between the production relations and the pro¬ 
ductive forces and between the superstructure and the economic 
substructure. Marx pointed out: ’’Once the material productive 
force of a society develops to a certain stage, it comes into conflict 
with the existing production relations or property relations (this 
is merely legal terminology for production relations). These 
relations become fetters impeding the productive forces be¬ 
cause of the form in which the productive forces have devel¬ 
oped. Then the time for socialist revolution has arrived. With 
the change in the economic substructure, the whole massive super¬ 
structure will undergo changes at varying speed." "The newer 
and higher production relations will never emerge before the 
material conditions suitable for their existence fully ripen in 
the embryo of the old society." (2) The material conditions for 
socialist production relations — socialized production and the 
proletariat acting as the gravediggers of capitalism — steadily 
develop under capitalist conditions. When capitalism develops 
into imperialism, the death knell of capitalism is sounded, and 
the time for proletarian socialist revolution has come. 

We already know that in human history, slavery, feudalism, 
and capitalism are all exploitative systems based on private 
ownership of the means of production. The replacement of one 
of these three social and economic systems by another always 
takes the form of a new private ownership system replacing an 



226 Fundamentals of Political Economy 


old private ownership system. Under these conditions, new pro¬ 
duction relations can gradually emerge within the old society. 
For example, capitalist production relations emerged gradually 
at the end of the feudal society. Even under these conditions, 
a new private ownership system, in order to become a dominant 
economic basis of society, must rely on the newly emerging ex¬ 
ploitative class which represents this private ownership system 
to launch revolutions, seize political power, and engage in life 
and death class struggle. This is a time-tested law. 

Socialist production relations are production relations based on 
public ownership. They cannot possibly emerge within the capital¬ 
ist society. The socialist public ownership system is fundamentally 
opposed to the capitalist ownership system in which the means of 
production are privately owned. To implement the socialist public 
ownership system of the means of production implies the expropri¬ 
ation of the bourgeoisie’s means of production. This cannotbecar- 
ried out in the capitalist society under bourgeois dictatorship. The 
bourgeois state machinery and its whole superstructure existfor 
the protection of the capitalist private ownership system. The 
bour geoisie will never allow socialist production relations to 
emerge from within the capitalist society. All fallacious arguments 
that "capitalism can peacefully pass into socialism” championed 
by new and old revisionists are totally contrary to the facts. These 
are "theories"which serve to preserve the capitalist system and 
and forbid the proletariat to rise up and rebel. With the develop¬ 
ment of capitalism, the path to complete societal revolutionary 
transformation is clear. It is: "The proletariat seizes political 
power in the state and first of all converts the means of production 
into state property." (3) 

The fundamental issue of revolution is political power. Chair¬ 
man Mao pointed out that "political power comes from the barrel 
of a gun." (4) Only by overthrowing the bourgeois state machine¬ 
ry and establishing proletarian dictatorship through revolution¬ 
ary violence can the proletariat establish and develop production 
relations based on socialist public ownership after socialist na¬ 
tionalization of the capitalist economy and socialist transforma¬ 
tion of the individual economy. Thus, proletarian revolution and 



The New Era of Socialist Society 227 


proletarian dictatorship become the preconditions for the emerg¬ 
ence of socialist production relations. 

The Paris Commune of 1871 was the historically significant debut 
of the proletariat overthrowing the capitalist system with revolu¬ 
tionary violence. Although the Paris Commune failed, theprinciple 
of a commune survived. The Paris Commune experience demon¬ 
strated that the proletariat must destroy the bourgeois state ma¬ 
chinery , that is to say, "it is impossible to simply grasp the existing 
state machinery and use it to achieve one * s purpose." (5) 

Lenin's leadership in the October Revolution was a brilliant 
implementation of the Marxist theory of violent revolution. The 
October Revolution experience demonstrated that in the period 
of imperialism and proletarian revolution, as long as there is 
a sizable proletariat, as long as there are masses suffering un¬ 
der oppression, and as long as there is a mature proletarian 
party which is capable of formulating a Marxist line based on 
the national revolutionary conditions and which is able to cor¬ 
rectly lead the proletariat, the poor, and the suffering peasants 
by uniting all forces that can be united to wage a persistent 
struggle against the class enemy, it is possible to overthrow 
bourgeois rule through armed revolution even in the most back¬ 
ward capitalist country and thereby establish a socialist country 
under proletarian dictatorship. 

The cannon fired in the October Revolution has brought the 
Chinese people Marxism-Leninism. The great Chairman Mao 
formulated a general line for China's new democratic revo¬ 
lution by combining the universal truth of Marxism-Leninism 
and China’s revolutionary situation. The general line was: "It 
will be a revolution led by the proletariat, of the people, and 
opposed to imperialism, feudalism, and bureaucratic capital¬ 
ism.” (6) Under the guidance of this revolutionary line, the path 
of establishing strongholds in the countryside and the rural 
areas and besieging, and finally seizing, the urban areas was 
followed. After a prolonged period of revolutionary war, the 
Chinese people overthrew the reactionary rule of imperialism, 
feudalism, and bureaucratic capitalism, demolished the old 
state machinery, and established the People's Republic of China 



228 Fundamentals of Political Economy 


under democratic dictatorship, that is, proletarian dictatorship. 
The birth of the People’s Republic of China was another great 
event in world history after the October Revolution. 

The experience of the Chinese revolution demonstrated that 
in the period of imperialism and proletarian revolution, if the 
proletariat of the* colonial and semicolonial countries could only 
seriously combine the universal truth of Marxism-Leninism 
with the actual revolutionary conditions of their countries, 
firmly grasp the leadership power of democratic revolution, 
and lead the people to victory in this revolution, it was entirely 
possible to enter the stage of socialist revolution immediately 
after completing the anti-imperialism and antifeudalism task. 

The triumphs of the October Revolution and the socialist 
revolution in China are the great victories of the Marxist theory 
of armed revolution. New and old revisionists always mali¬ 
ciously attack armed revolutions. They champion the fallacy 
of ’’peaceful transition,” which is nothing but a replica of the 
"principles of magnanimity" preached by the philosopher Con¬ 
fucius, a spokesman for the then decadent slave-owning class 
in China. [Editor's note: Confucius's principles of magnanimity 
simply phrased means: "True to the principles of our nature 
and the benevolent exercise of them toward others."] The 
"principles of magnanimity" have, never been magnanimous at 
all, and the bourgeoisie has always used reactionary forces to 
oppress the proletariat. The so-called "way of loyalty and 
reciprocity" was merely a hoax which the exploiting class used 
to paralyze the revolutionary spirit of the laboring people. The 
present-day bona fide disciple of Confucius, Lin Piao, even 
picked up such dust-covered weapons as "one who wields virtue 
prospers, one who wields force perishes," vainly attempting to 
restrict the freedom of the proletariat and to oppose the use 
of revolutionary violence against the reactionary class. 

With respect to the consistent fallacy opposing revolutionary 
violence championed by domestic and foreign revisionists, 
Chairman Mao solemnly pointed out: "The central task and 
the highest form of revolution is armed seizure of political 
power and the resolution of issues by armed struggle. This 



The New Era of Socialist Society 229 


Marxist-Leninist revolutionary principle is universally correct. 
Whether it is in China or abroad, it is always correct." (7) 

This is a universal law of proletarian revolution. 

The Crux of th e "P roducti vity Fi rst Theory" 

Is Its Opposition t o Proletarian Re volution 
and Proletarian Di ctatorship 

The most fundamental betrayal of Marxism by the new and 
old revisionists is their opposition to proletarian revolution and 
proletarian dictatorship. The tattered banner hoisted in their 
opposition to proletarian revolution and proletarian dictatorship 
is often the reactionary "productivity first theory." 

The revisionists Bernstein and Kautsky of the Second Inter¬ 
national tried very hard to champion the idea that owing to the 
development of the productive forces, capitalist countries with 
highly developed industries would "gradually give rise to" the 
socialist economic system. It was not necessary to resort to 
violent revolution. Capitalist countries with underdeveloped 
industries, colonies, and satellite countries must first "devel¬ 
op" their productive forces. Without highly developed produc¬ 
tive forces, the proletariat could not wage revolution. This was 
an early version of the "productivity first theory" in the inter¬ 
national communist movement. This fallacy treated social 
transformation purely as an issue of the development of the 
productive forces. It completely ignored the effect of the pro¬ 
duction relations on the development of the productive forces 
and the effect of the superstructure on the economic basis. It 
ignored the fact that in a class society, social transformation 
must go through violent class struggle before this theory of 
historical materialism can be realized. 

The founder of Marxism dealt a firm blow to the "productiv¬ 
ity first theory" of the revisionists. Engels pointed out: "Ac¬ 
cording to historical materialism, the determining factor in the 
historical process must ultimately be production and reproduc¬ 
tion of actual living conditions. Neither Marx nor I has as¬ 
cribed greater importance to any other factor. If some people 



230 Fundamentals of Political Economy 


have deliberately distorted this, saying that economic factors 
are the only determining factors, then they have converted this 
issue into an empty, abstract, and ridiculous verbal exercise." (8) 

In the proletarian revolution of Russia, people like Trotsky 
and Bukharin again picked up this worn "productivity first the¬ 
ory" in a vain attempt to oppose the Russian proletariat's 
triumphant advance against the capitalist system. They insisted 
that economically backward Russia was not qualified to estab¬ 
lish socialism. This type of nonsense was soundly criticized 
by Lenin. Lenin asked: "Why can't we first use revolutionary 
means to attain the preconditions for achieving this certain 
level and catch up with the people of other countries on the ba¬ 
sis of worker-peasant political power and the Soviet system ?" (9) 

In the course of China's democratic and socialist revolutions, 
successive leaders of the revisionist line, from Ch'en Tu-hsiu 
to Liu Shao-ch'i and Lin Piao, all borrowed the reactionary 
"productivity first theory" from the Second International re¬ 
visionists and Trotskyites. They said that China's economy was 
backward and that the proletariat could seize political power 
only after capitalism was highly developed. This in effect would 
eliminate China's revolution and keep China in her semicolonial 
and semifeudal status. Chairman Mao has countered this posi¬ 
tion with this observation: "Without political reform, all pro¬ 
ductive forces are doomed to be destroyed. It is true for agri¬ 
culture and also true for industry." ( 10) Referring to the semi¬ 
colonial and semifeudal status of China's old society, Chairman 
Mao pointed out: China's revolution must proceed in two steps. 
The first step is the new democratic revolution. The second 
step is the socialist revolution. These are two different, and 
yet related, revolutionary processes. The democratic revolu¬ 
tion is the necessary preparation for the socialist revolution. 
The socialist revolution is an inevitable trend of the democratic 
revolution. This totally and thoroughly demolishes the con¬ 
spiracy of people like Ch'en Tu-hsiu who vainly attempted to 
obstruct the revolutionary flood by resorting to the reactionary 
"productivity first theory." 

Chairman Mao said: "True enough, productive forces, prac- 



The New Era of Socialist Society 231 


tice, and economic substructure generally appear to play the de¬ 
termining role. Whoever denies this fact is not qualified to be a 
materialist. But under certain conditions, production relations, 
theory, and superstructure also revolve and show their impor¬ 
tant and determining role. This must also be accepted." ( 11) 

The history of the international communist movement has dem¬ 
onstrated that the line of demarcation between Marxism and 
revisionism in the proletarian struggle for political power lies 
in whether one persistently follows the dialectical materialist 
theory of the unity of the production relations and the productive 
forces and the unity of the superstructure and the economic 
substructure or whether one pushes the reactionary ’’produc¬ 
tivity first theory." 

The Socialist Society Is a Fairly Long Historical Stage 

The Socialist Society Is a Period of Struggle between 
Declining Capitalism and Emerging Communism 


What kind of a society is the socialist society that is estab¬ 
lished through proletarian revolution? What are its basic 
characteristics ? 

Marx pointed out: "Between capitalist society and communist 
society, there is a revolutionary period of transformation from 
the former to the latter. Corresponding to this period is a 
political transition period. The state in this period can only be 
one under proletarian revolutionary dictatorship." ( 12) The 
period described by Marx as "a period of revolutionary trans¬ 
formation from the former to the latter" and "a political tran¬ 
sition period" is the historical period of socialism. The soci¬ 
ety in this period is the socialist society under proletarian dic¬ 
tatorship. 

In the socialist society, the public ownership system of the 
means of production replaces the private ownership system. 
The laboring people control the fate of the socialist economy 
and become the masters of society. Marxist ideological edu¬ 
cation gradually liberates millions of laboring people from the 



232 Fundamentals of Political Economy 


influence of the old society to progress along the socialist and 
communist paths. From this aspect, socialist society already 
possesses some elements of communist society. But socialist 
society is merely a preliminary stage of communist society, not 
a completely communist society. Just as Marx pointed out: 
,r What we describe here is such a communist society. It is not 
fully developed on its own basis. On the contrary, it has just 
emerged from the capitalist society. Therefore, traces of the 
old society from which it was born can still be seen in its eco¬ 
nomic, moral, and ideological aspects.” (13) This is to say, in 
various aspects of socialist society, there still remain some 
capitalist traditions and influences: the bourgeoisie and all 
exploiting classes have been overthrown, but their influence on 
economics, politics, and ideology will exist for a long time. 

The disparities between the worker and the peasant, the urban 
and the rural areas, and mental labor and physical labor which 
are left over from the old society and the remaining legal rights 
reflecting these disparities will persist for a long time. Con¬ 
sequently, the whole historical stage of socialist society "has 
to be a period of struggle between declining capitalism and 
emerging communism." (14) 

This nature and characteristic of socialist society determine 
that socialist society will not be a short and temporary period, 
but a fairly long historical stage. 

Before the socialist revolution, the revolutions to replace 
slavery with feudalism and feudalism with capitalism merely 
constituted the substitution of a new exploitative system for an 
old exploitative system. The proletarian socialist revolution 
is fundamentally different. It will thoroughly eliminate all ex¬ 
ploitative systems among men, all classes and class disparities, 
and the remaining bourgeois legal rights reflecting these dis¬ 
parities. This revolution is richer, wider, and more complex 
than any other revolution in history. The goal of communism 
can be realized in the end only through long-term struggle and 
by gradually creating favorable conditions. 

To eliminate classes, the socialist society must make a thor¬ 
oughly clean break from all customary influences of the tradi- 



The New Era of Socialist Society 233 


tional concept of private ownership and the old society. The 
specter of Confucius, who stubbornly defended slavery in China 
more than two thousand years ago, has been used by the ex¬ 
ploiting classes of various historical periods to consolidate 
their reactionary rule. Today, the reactionary thought of Con¬ 
fucius is still used by the bourgeoisie and revisionists as an 
ideological weapon to restore capitalism. It is a long and com¬ 
plex task to solve the issue of whether socialism or capitalism 
will win out in the sphere of political ideology. Chairman Mao 
pointed out: "In the sphere of political ideology, the struggle 
for triumph between socialism and capitalism requires a long 
time to resolve. It will not be completed in a few decades. It 
may take centuries.” (15) 

"The final triumph of building a socialist country not only 
depends on the efforts of its own proletariat and the broad peo¬ 
ple, but also on the triumph of world revolution, the global 
elimination of exploitative systems among men, and the libera¬ 
tion of the human race." (16) We are still in the period of im¬ 
perialism and proletarian revolution. The final triumph of the 
socialist revolution will be won only after a series of difficult, 
complex, and long-term class struggles in the world. 

Correctly understanding the nature and characteristics of 
socialist society, correctly understanding that socialist society 
is a fairly long historical stage, and drawing a line between 
scientific socialism and all kinds of fake socialism has great 
significance for the success of the proletariat of all countries 
in their socialist revolution and for the struggle to prevent cap¬ 
italist restoration after the victory of the revolution. The vic¬ 
tory of socialism over a large area of the world will force its 
enemies to disguise themselves as socialists. They will hoist 
various "socialist" banners to deceive the world and win fame 
for themselves. In the contemporary period, there is the "de¬ 
veloped socialism" served up by Brezhnev, the "real socialism" 
peddled by Lin Piao, and so forth. People like Brezhnev vainly 
hope to hide themselves behind "developed socialism" in order 
to increase their exploitation and oppression of the laboring 
people in their own country and unscrupulously restore capital- 



234 Fundamentals of Political Economy 


ism. Abroad, they step up aggression and expansion in their 
futile attempt to achieve world supremacy. The so-called 
"developed socialism" is a new form of bureaucratic monopoly 
capitalism, that is, social imperialism. The "real socialism" 
peddled by people like Lin Piao was merely a disguise. His 
reactionary program was Confucius' "restraining oneself and re¬ 
storing the rites." He clamored that "of all things, this is the most 
important." His intention was to conspire to sabotage China's so¬ 
cialist system under the proletarian dictatorship and to restore 
capitalism. The so-called "real socialism" was in fact real 
capitalism. This company of renegades vainly attempted to 
mix the genuine with the fictitious in order to paralyze the rev¬ 
olutionary spirit of the broad masses of people. But, Marxist 
scientific socialism cannot be faked. Once it is compared with 
the nature and characteristics of the socialist society as ex¬ 
plained by Marxism, it is easy to expose the various brands of 
fake socialism. 

The Theory of the Basic Contradictions in the 
Socialist Society Is the Theoretical Basis for 
Continuing Revolution under Proletarian Dictatorship 


After proletarian dictatorship was established in China, 
Chairman Mao laid down a general line for the Party in the 
transition period, "Within a fairly long period of time, socialist 
industrialization is to be gradually realized in the country, and 
socialist transformation of agriculture, the handicraft industry, 
and capitalist industry and commerce by the state is to be 
gradually realized." (17) According to this general line, China 
had basically completed the socialist transformation of the 
ownership system of the means of production in 1956. In this 
situation, is socialist society still a historical process of the 
motion of contradictions ? What are the basic contradictions 
in socialist society ? Are these contradictions mainly manifested 
in the contradiction and the struggle between the proletariat and the 
bourgeoisie ? It is exactly in these questions thatjundamental dif¬ 
ferences exist between Marxism and modern revisionism. 


The New Era of Socialist Society 235 


The Soviet revisionist renegade clique flatly denies that con¬ 
tradictions exist in socialist society from beginning to end. It 
flatly denies that these contradictions are mainly manifest in 
the struggle between the proletariat and the bourgeoisie. It 
flatly denies that it is exactly the unity and struggle between 
opposites that propels the development of socialist society. Its 
intent is to conceal its evil countenance of totally restoring 
capitalism and implementing fascist dictatorship. The com¬ 
pany of Liu Shao-ch'i and Lin Piao followed in the footsteps of the 
Soviet revisionists. After the great victory achieved in China's 
socialist transformation of the ownership system of the means 
of production, they fabricated nonsense claiming that "there was 
a contradiction between the advanced socialist system and the 
backward social productive forces." They vainly attempted to 
use this nonexistent "contradiction" to negate the ever-present 
contradiction between the production relations and the produc¬ 
tive forces, between the superstructure and the economic sub¬ 
structure. To cover uptheir conspiracy to restore capitalism in 
China, they denied that the main contradiction in Chinese society 
was the contradiction between the working class and the bourgeoi¬ 
sie. Faced with this revisionist countercurrent, Chairman Mao 
has advanced the great theory about the basic contradictions in so¬ 
cialist society based on the fundamental principles of Marxism 
and the accumulated experience of the international communist 
movement. Chairman Mao pointed out that the universal law 
of unity and struggle between opposites in Nature, human soci¬ 
ety, and human thought is equally applicable to the socialist 
society. "In the socialist society, the basic contradictions are 
still the contradictions between the production relations and 
the productive forces, and between the superstructure and the 
economic basis." (1£) Chairman Mao's theory about the basic 
contradictions in socialist society succeeds, defends, and de¬ 
velops Marxism-Leninism. It has dealt a fatal blow to modern 
revisionism and has effectively armed the proletariat and the 
broad laboring people. 

The socialist production relations correspond to the develop¬ 
ment of the productive forces. It permits the productive forces 



236 Fundamentals of Political Economy 


to develop rapidly at a speed that is not possible in the old so¬ 
ciety. The state system and law under proletarian dictatorship 
and superstructures such as the socialist ideology which are 
guided by Marxism also conform to the socialist economic ba¬ 
sis, namely socialist production relations. This is the funda¬ 
mental aspect. But there is another aspect of the contradictions 
in socialist society between the production relations and the 
productive forces and between the superstructure and the eco¬ 
nomic basis. The correspondence and contradiction with one 
another among the various aspects of the basic contradictions 
of socialist society propels socialist society forward. 

In order to correctly understand how the production relations 
correspond to and contradict the productive forces in socialist 
society, it is necessary to make a concrete analysis of the pro¬ 
duction relations in socialist society. 

During a certain period of time in socialist society, there 
still exist nonsocialist production relations. With regard to the 
ownership system, for example, the joint state and private en¬ 
terprises in China were basically socialist in nature. But dur¬ 
ing a certain period of time, the capitalist could still obtain a 
fixed interest. In other words, exploitation and remnants of 
capitalist private ownership still existed. After the fixed in¬ 
terest was abolished, there were still remnants of individual 
economy in the urban and rural areas for a fairly long period 
of time in the socialist society. In the aspect of interpersonal 
relations, opposition between classes representing the capital¬ 
ist production relations and the laboring people still existed. 
With regard to the distribution of personal consumption goods, 
high salaries were still paid to the capitalist and bourgeois ex¬ 
perts whose services were retained for a period of time. These 
high salaries did not embody the socialist principle of from 
each according to his ability and to each according to his labor, 
but were in fact a form of redemption. All these nonsocialist 
production relations were not only in conflict with the develop¬ 
ment of the productive forces, but also with socialist production re¬ 
lations. In the development process of socialist construction, these 
nonsocialist production relations must gradually be transformed. 



The New Era of Socialist Society 237 


On the other hand, the socialist production relations them¬ 
selves also undergo a development process from an imperfect 
state to a more perfect state. In socialist society, ’’communism 
is still not completely mature economically. It still cannot 
completely freeitselffrom capitalist tradition and influence." (19) 
The establishment of the socialist public ownership system was 
a fundamental negation of the private ownership system. But 
this does not imply that the issue of ownership is completely 
settled. The consolidation and perfection of the socialist state 
ownership system and the socialist collective ownership system 
by the laboring masses must undergo a long process during 
which the proletariat and the bourgeoisie fight for economic 
leadership. The socialist collective ownership system must 
also undergo a process of transition from a small collective 
ownership system to a large collective ownership system and 
finally to a socialist state ownership system. With regard to 
interpersonal relations in socialist production, there still exist 
disparities between the worker and the peasant, the urban and 
rural areas, and mental and physical labor and also bourgeois 
legal rights left over from the old society which reflect these 
disparities. Distribution of consumer goods according to 
labor is still a bourgeois legal right. These bourgeois legal 
rights will exist for a long time in the socialist stage. The 
proletariat must accept them and at the same time create fa¬ 
vorable conditions for their retirement from the historical 
stage. 

At the same time, with the rapid development of the produc¬ 
tive forces, conditions in which some aspects of socialist pro¬ 
duction relations are no longer compatible with the development 
of the productive forces must be adjusted and streamlined in 
time. 

But, in the final analysis, the central problem of perfecting 
socialist production relations cannot but be a process of strug¬ 
gle in which the emerging communist factors gradually triumph 
over the declining capitalist tradition and influence. 

To understand how the superstructure of the socialist society 
corresponds to and contradicts the economic substructure, it is 



238 Fundamentals of Political Economy 


also necessary to conduct a concrete analysis of the superstruc¬ 
ture in socialist society. In socialist society, there exists a bour¬ 
geois ideology. In the superstructure of socialist society, for 
example, the existence of certain representatives of the bour¬ 
geoisie in the state organization, certain bureaucratic styles 
of work, and certain imperfections in the state system are all 
in conflict with the socialist economic substructure. Only by con¬ 
tinually resolving these contradictions can the superstructure 
further meet the need to consolidate and develop the socialist 
economic foundation. 

The basic contradictions in socialist society are fundamental¬ 
ly different in nature and condition from the contradictions be¬ 
tween the production relations and the productive forces, between 
the superstructure and the economic substructure in the old so¬ 
ciety. The basic contradictions of the capitalist society are 
manifested as violent oppositions and thrusts. These contra¬ 
dictions can only be resolved through violent revolution by the 
proletariat, the overthrow of the bourgeois dictatorship, and 
the elimination of capitalist production relations. The contra¬ 
dictions between socialist production relations and the produc¬ 
tive forces, between the superstructure and the economic substruc - 
ture are an entirely different matter. The process of continual 
emergence and resolution of these contradictions are also the 
process of transition from the socialist society to the commu¬ 
nist society. In this process, workers, peasants, and other la¬ 
boring people, who are the ruling class, are not overthrown by 
any opposition power. They still remain the masters of society. 
The public ownership system is not destroyed, but is developed 
to a higher stage. In this sense, the contradictions of socialist 
society "are not antagonistic contradictions, and can be re¬ 
solved continually through the socialist system itself.” (20) 

The conformity and contradiction between socialist produc¬ 
tion relations and the productive forces, between the super¬ 
structure and the economic substructure constitute a continu¬ 
ous dialectical process which propels socialist society con¬ 
tinuously forward. 

Chairman Mao’s theory on the basic contradictions in the 



The New Era of Socialist Society 239 


socialist society is the theoretical basis for the continuous revo¬ 
lution under proletarian dictatorship. Chairman Mao pointed 
out: "In China, although socialist transformation in ownership 
is basically completed,” "remnants of the overthrown landlord 
and comprador classes still exist. The bourgeoisie still exists, 
and the petty bourgeoisie is just in the process of transforma¬ 
tion." "The issue of whether socialism or capitalism will win 
out has not really been resolved." "Class struggle between the 
proletariat and the bourgeoisie, class struggle between political 
forces, and class struggle in ideology between the proletariat 
and the bourgeoisie are still prolonged, tortuous, and sometimes 
even violent."(21) This, then, is the first clear-cut conclusion 
drawn from the theory and practice of the international com¬ 
munist movement: After the socialist transformation of the 
ownership system of the means of production is basically com¬ 
pleted, there still exist classes and class struggle. The pro¬ 
letariat must continue revolution and pursue the socialist revo¬ 
lution on the political, economic, ideological, and cultural bat- 
tlefronts to the very end. 

Firmly Adhere t o th e B asic Line o f t he Party 
for the Whole Socialist Historical Stage 


Chairman Mao teaches us that "everything depends on wheth¬ 
er or not the ideological and political line is correct." To in¬ 
sist on continuous revolution under proletarian dictatorship, 
the proletariat needs a correct line. 

Based on a detailed analysis of the basic contradictions in 
socialist society and his theory of continuous revolution under 
proletarian dictatorship, Chairman Mao formulated for our 
Party a basic line for the whole socialist historical stage: 

"The socialist society is a fairly long historical period. In the 
socialist historical stage, there still exist classes, class con¬ 
tradictions, class struggle, the struggle between the socialist 
and the capitalist roads, and the danger of capitalist restora¬ 
tion. We must be fully aware of the protracted and complex 
nature of these struggles. We must be on the alert. We must 



240 Fundamentals of Political Economy 


conduct socialist education. We must correctly understand and 
handle class contradictions and class struggle, correctly dis¬ 
tinguish contradictions with our enemies from contradictions 
among the people and handle them accordingly. Otherwise, our 
socialist country will go the wrong way and deteriorate, and 
restoration will appear. From now on, we must talk about it 
every year, every month, and every day so that we can have a 
clearer appreciation of this issue and a Marxist-Leninist 
line.” (22) This proletarian revolutionary line formulated by 
Chairman Mao reveals the objective law governing class strug¬ 
gle in the socialist period and is the only correct line for real¬ 
izing the basic program of the Party. This basic line is a 
brilliant beacon that shines over the historical route of contin¬ 
uous revolution for the whole Party, the whole country, and the 
whole people under proletarian dictatorship. 

The protracted nature of class struggle in the socialist so¬ 
ciety is due to the inevitable reflection of the struggle between 
emerging communist factors and declining capitalist tradition 
and influence on the class relations. The overthrown exploiting 
class still survives and continues to contest the proletariat in 
their every possible attempt to recover their lost ’’heaven." 
Spontaneous forces among the petty bourgeoisie can also lead 
to a new bourgeoisie. Because of the influence of the bour¬ 
geoisie and the encirclement and corrosive influence of the 
petty bourgeoisie, some degenerate elements, persons in power 
taking the capitalist road, and spokesmen for the bourgeoisie 
may emerge in the working class, Party and government orga¬ 
nizations, and in cultural and educational departments. At the 
same time, imperialism and social imperialism always try hard 
to convert socialist countries into capitalist countries or even 
colonial or semicolonial countries. International class struggle 
will inevitably be reflected in the socialist countries. In the 
process of continually perfecting the socialist production re¬ 
lations and superstructure, communist factors in production 
relations and the superstructure will be gradually strengthened 
and capitalist tradition and influence will gradually be swept 
away. This will certainly promote the continual consolidation 



The New Era of Socialist Society 241 


of the socialist economic substructure and the continuous de¬ 
velopment of the productive forces. 

The proletariat and the broad laboring people under its lead¬ 
ership are the representatives of socialist production rela¬ 
tions. They firmly adhere to the socialist road and always 
firmly adhere to the Marxist theory of continuous revolution 
and the stage theory of revolutionary development. They pro¬ 
mote the continuous consolidation and perfection of socialist 
production relations and the superstructure. The bourgeoisie 
and its agents inside the Communist Party are the representa¬ 
tive of capitalist production relations. They insist on taking the 
capitalist road and always try hard to transform socialist pro¬ 
duction relations into capitalist production relations. There¬ 
fore, in the whole socialist historical stage, the struggle be¬ 
tween the proletariat and the bourgeoisie and the struggle be¬ 
tween the socialist and the capitalist roads always exist ob¬ 
jectively and cannot be changed by human will. This is to say, 
the struggles are inevitable. Though people may want to avoid 
them, it is not possible. The proletariat can only gain victory 
by taking advantage of favorable conditions. 

Class struggle in the socialist society develops in wavelike 
motions with peaks and troughs. This is due to a difference in 
the conditions of class struggle and not to whether there is 
class struggle or not. The history of the socialist society tells 
us that class enemies and all monsters and freaks will show 
themselves. Chairman Mao pointed out: ’’Total disorder is 
followed by total order. This cycle repeats itself once every 
seven or eight years. Monsters and freaks will show them¬ 
selves of their own accord. Their class nature determines that 
they must show themselves.” (23) The law of class struggle 
requires that there be a big struggle every few years. Only 
after repeated contests and with the gradual wane of the reac¬ 
tionary class can the proletariat finally complete the great his¬ 
torical task of eliminating the bourgeoisie and all exploiting 
classes. 

Class struggle in society must of necessity be reflected in 
the Party and is manifested as a struggle between the two lines 



242 Fundamentals of Political Economy 


inside the Party. The substance of the basic Party line is "to 
apply Marxism and not apply revisionism/' The basic Party 
line tells us that the struggle against revisionism is a long¬ 
term struggle. In the last twenty and more years, the struggle 
between our Party and the four anti-Party cliques headed by 
Kao Kang, Jao Shu-shih, P'eng Te-huai, Liu Shao-ch’i, and Lin 
Piao was a struggle against revisionism. Chairman Mao per¬ 
sonally launched and led the Great Proletarian Cultural Revo¬ 
lution. It was a great revolution in the superstructure, a great 
political revolution under the condition of proletarian dictator¬ 
ship. It could also be called the second revolution of China. 

In the Great Proletarian Cultural Revolution, Chairman Mao led 
the whole Party, the entire armed forces, and the whole people 
to destroy the two bourgeois command headquarters headed by 
Liu Shao-ch'i and Lin Piao. This bunch of renegades and trai¬ 
tors conspired to usurp the supreme power of the Party and the 
state and sought to fundamentally transform the basic Party 
line and policy for the whole socialist historical stage in order 
to transform the Marxist-Leninist Party into a revisionist 
fascist party, sabotage proletarian dictatorship, and restore 
capitalism. The substance of their revisionist line is extreme 
Right. Their counterrevolutionary conspiracy has been crushed 
by the hundreds of millions of revolutionary people of China. 
The Great Proletarian Cultural Revolution has won a great 
victory. Revolution is still developing, and struggle is still 
continuing. In the historical stage of socialist society, the 
struggle between the two lines inside the Party which reflects 
class struggle will long exist. Chairman Mao pointed out: "The 
present Great Cultural Revolution is merely the first one. 

There will be many more afterward." "Who will win out in 
revolution can be determined only after a fairly long period of 
time in history. If it is not handled well, capitalist restoration 
is possible at any time. All the Party members and the whole 
people should not think that things will be all right after one 
or two, or three or four, great cultural revolutions. Make 
doubly sure that vigilance will not be relaxed." (24) 



The New Era of Socialist Society 243 


Socialist Society Constitutes the Beginning of 
People Consciously Creating History 


The Great Soarin g Leap in the History of 
Human Development 


The proletariat and the laboring people continue revolution 
under the proletarian dictatorship in order to make the super¬ 
structure serve the socialist economic substructure, to make pro¬ 
duction relations conform to the development of the productive 
forces, and to consciously transform society and Nature ac¬ 
cording to the economic law of socialism. This is a giant stride 
in human history. 

There are several thousand years of written human history. 
But, before the birth of socialist society, this long period of 
history was merely a "prehistorical period" in human society. 
The producer was enslaved not only by Nature but also by the 
means of production which he manufactured. "It was not the 
producer who controlled the means of production, but the means 
of production which controlled the producer." ( 25) That is to 
say, the exploiting class, which controlled the basic means of 
production and thus state political power, maliciously oppressed 
and exploited the broad laboring people and reduced them to 
dark and miserable lives. The proletarian socialist revolution 
is a spring thunder that has shaken human history. It has 
brought an end to the "prehistorical period" and has ushered 
in a new era in history in which people consciously create 
history. 

This material basis for the great leap in human history lies 
in the transformation of private ownership of the means of pro¬ 
duction into socialist public ownership after the proletariat and 
the laboring people have seized political power. In socialist 
society, public ownership of the means of production makes the 
laboring people, who are the majority of the people, the mas¬ 
ters of the state and enterprises. Only when the laboring peo¬ 
ple have become the masters of social relations can they be¬ 
come the masters of nature and consciously transform the 



244 Fundamentals of Political Economy 


world and create history under the guidance of Marxism. 

Naturally, compared with an advanced communist society, 
the socialist society is only the beginning of an era in which 
people consciously create history. In addition to the limits im¬ 
posed on the developmental level of the productive forces and 
on our knowledge of the physical world, the main obstacle lies 
in the continuing existence in socialist society of the bourgeoi¬ 
sie and its ideological influence and of disparities between the 
worker and the peasant, the urban and rural areas, and mental 
and physical labor. Therefore, although the proletariat and 
the broad laboring people control state political power and the 
basic means of production, their conscious activities in trans¬ 
forming the world and creating history are still restricted by 
history. Nevertheless, ’'the most important thing is that solid 
ice is crushed, the route is cleared, and the road clear.” (26) 
The proletariat will finally shape a communist new world 
through the socialist society and in its own image. 

Fully Exploit the Initiating Role of the Superstructure , 
Consciously Make Use of the Objective Law 


In socialist society, people begin to consciously create their 
own history. This does not mean that people can create history 
at will. It simply means that for the first time people of the 
entire society can consciously identify and make use of the ob¬ 
jective law to serve the interests of the proletariat and the 
broad laboring people. 

"Freedom consists of knowledge of the inevitable and trans¬ 
formation of the objective world." ( 27) Economic laws are 
objective laws governing the development of social economy 
and are not subject to change according to human will. People 
cannot "transform" or "create" objective laws. But, people are 
not entirely helpless before objective laws. In socialist society, 
people can correctly identify them, rely on them, make use of 
them, and lead the destructive forces of certain laws into an¬ 
other direction or restrict their scope of operation. On the 
other hand, a larger scope of operation is given to laws that are 



The New Era of Socialist Society 245 


constructive in order to achieve the purpose of transforming the 
objective world. 

Under different social systems, the forms to which economic 
laws apply possess different characteristics. In capitalist so¬ 
ciety, because the means of production are privately owned, 
production is carried on under blind competition and chaotic 
conditions. Therefore, economic laws always play an alien role 
in the capitalist society. The socialist society is based on pub¬ 
lic ownership of the means of production. The laboring people 
are the masters of social economic relations. This makes it 
possible for people to consciously practice economic laws. 

Just as Engels once prophesied, "Up to now, the laws governing 
the people's social behavior, like the natural laws which are 
alien to the people but nevertheless control them and oppose 
them, will be skillfully mastered by the people and subject to 
their control by that time." (28) 

The establishment of a system of public ownership of the 
means of production makes it possible for people to identify 
and consciously operate according to the economic laws. But, 
to turn this possibility into reality, struggle is inevitable. The 
efforts of the proletariat to operate according to economic laws 
and of society to accelerate the transformation of the socialist 
society into a communist society will certainly meet violent 
resistance from the bourgeoisie and other decadent social forces, 
especially interference and sabotage from the revisionist 
line. The process of conscious application of socialist econom¬ 
ic laws is the process of struggle between the proletariat and 
the bourgeoisie, between the Marxist line and the revisionist 
line. At the same time, people must also resolve "the contra¬ 
diction between the objective law of economic development in 
socialist society and our subjective knowledge" in practice. ( 29) 
This represents another process. It is necessary to start from 
practice, conduct investigations and research, go from no ex¬ 
perience to experience and from a little experience to a lot of 
experience, and gradually overcome impulses and raise con¬ 
sciousness. This process of understanding cannot be divorced 
from the transformation process of people's world outlooks. 



246 Fundamentals of Political Economy 


People with the proletarian world outlook can more correctly 
identify the laws of development governing socialist economy. 
Firm adherents to the bourgeois outlook can never correctly 
identify the laws of development governing socialist economy. 
Therefore, this process of understanding is also a process of 
destroying the bourgeois world outlook and establishing the pro¬ 
letarian world outlook. Those viewpoints which regard the con¬ 
scious application of economic laws in socialist society as an 
easy matter that requires neither hard work, nor the overcoming 
of resistance from the bourgeoisie and from interference from 
the revisionist line, nor struggle between the two world outlooks 
are wrong. These are viewpoints which advocate: Let nature 
takes its own course, or let us extinguish class struggle. 

In the socialist society, to consciously apply objective eco¬ 
nomic laws, it is necessary to fully exploit the active aspect of 
the superstructure. 

The immense capability of the socialist superstructure is 
manifested mainly in the leadership of the proletarian political 
party. The proletarian political party is established according 
to Marxist revolutionary theory and revolutionary style. It is 
good at comprehending objective laws governing historical de¬ 
velopment, assimilating the wisdom of the masses, grasping the 
general trend of historical development, and formulating correct 
theory, programs, lines, and general and specific policies based 
on actual conditions in the various stages of social development. 
These correct theories, programs, lines, and general and spe¬ 
cific policies come from the masses and return to the masses, 
leading them to victory in their struggle. The Communist Party 
of China uses Marxism-Leninism-Mao Tsetung Thought 
as a theoretical basis for its guiding thought. That the Party's 
theory of revolution, especially its theory about continuous 
revolution under proletarian dictatorship, and the Marxist line 
and general and specific policies formulated by the proletarian 
political party can be so invincible is because the theories cor¬ 
rectly reflect the objective laws governing the economic devel¬ 
opment of society. "Without revolutionary theory,, there will 
never be revolutionary action." ( 30) It is therefore important 



The New Era of Socialist Society 247 


to seriously study the Marxist theory concerning continuous 
revolution under proletarian dictatorship in order to guide us 
to correctly identify, and operate according to, the economic 
laws governing socialist society. 

Party leadership is ultimately leadership by the Marxist line. 
Only by grasping revolution in the superstructure, including 
the ideological sphere, and making sure that the ideological and 
political lines are correct, can a Marxist party lead the pro¬ 
letarian revolutionary enterprise from victory to still greater 
victory. 

The state political power of proletarian dictatorship under 
the leadership of the Communist Party plays an immense role 
in guaranteeing the thorough implementation of the basic Party 
line and in organizing and leading the socialist economy. By 
exercising its own state political power, the proletariat can un¬ 
fold socialist revolution on the economic battlefront, establish 
and develop socialist production relations, plan, organize, and 
lead the whole national economy, develop social productive forces, 
and unfold socialist revolution on the political, ideological, 
and cultural battlefronts in order to consolidate the socialist 
economic basis by continually perfecting the socialist super¬ 
structure. Continuous revolution under proletarian dictatorship 
requires full exploitation of this initiating role of the state po¬ 
litical power of proletarian dictatorship. These conditions can¬ 
not be created under bourgeois dictatorship. Bourgeois revolu¬ 
tion comes to an end as soon as the bourgeoisie seizes political 
power. Although the bourgeoisie tried hard to use political 
power and other parts of the superstructure to protect capital¬ 
ist production relations, the steady deterioration of capitalist 
production relations led to a corresponding reaction in bour¬ 
geois political power. This kind of protection was merely a 
moribund struggle. As far as the socialist revolution is con¬ 
cerned, the seizure of political power by the proletariat is 
merely the beginning of revolution. Socialist production rela¬ 
tions undergo a regenerating process with the development of 
the productive forces. The state political power under pro¬ 
letarian dictatorship, promoting such a regeneration and pro- 



248 Fundamentals of Political Economy 


pelling the development of the productive forces, is, in the end, 
the most powerful weapon by which the proletariat continues 
socialist revolution. With this weapon, the proletariat can now 
crush the resistance of the bourgeoisie and other reactionary 
forces, unite the whole laboring people around itself, trium¬ 
phantly unfold the Three Great Revolutionary Movements of 
class struggle, production struggle, and scientific experiment, 
promote the rapid development of social productive forces, and 
promote the steady consolidation and perfection of the socialist 
economic basis and superstructure in order to make socialist 
society advance along the basic Party line until the realization 
of the highest ideal of communism. 

Major Stu dy References 

Marx, Critique of the Gotha Program. 

Lenin, "Economics and Politics in the Period of Proletarian 
Dictatorship." 

Chairman Mao, "On the Correct Handling of Contradictions 
among the People." 

Review Problems 


1. Why do we say violent revolution is the universal law of 
proletarian revolution? What is the crux of the "productivity 
first theory"? 

2. How do we understand socialist society? How do we in¬ 
terpret Chairman Mao's theory about the basic contradiction 

of socialist society as being the theoretical basis for continuous 
revolution under proletarian dictatorship ? 

3. Why do we say that the focal point of the struggle between 
the proletariat and the revisionist leaders in the whole socialist 
historical stage lies in whether the basic Party line is firmly 
adhered to or whether it is changed ? How can the activating 
role of the superstructure be fully exploited and the objective 
economic laws be consciously applied? 



The New Era of Socialist Society 249 


Notes 


1) Chairman Mao, "A Talk on the Fortieth Anniversay Confer - 
ence to Celebrate the Great October Revolution by the Supreme So¬ 
viet of the Soviet Uni on," Jen-minch’u-pan-she, 1957,p. 5. 

2) Marx, "Introduction to A Critique of Political Economy ," 
Selected Works of Marx and E ngels , Vol. 2, Jen-min ch'u-pan- 
she, 1972, pp. 82-83. 

3) Engels, Anti-Duhring, Selected Works of Marx and En¬ 
gels , Vol. 3, Jen-min ch'u-pan-she, 1972, p. 320. 

4) "War and Strategic Problems," Selected W ork s of Ma o 
Tse-tung, Vol. 2, Jen-min ch f u-pan-she, 1968, p. 512. 

5) Marx, "French Civil War," Selected Works of Marx and 
E ngels , Vol. 2, Jen-min ch'u-pan-she, 1972, p. 372. 

6) "A Talk to the Conference of Chin-Sui Cadres," S elected 
Works of Mao Tse-tung, Vol. 4, Jen-min ch'u-pan-she, 1968, 

p.1211. 

7) "Problems of War and Strategy,” p. 506. 

8) Engels, "To Yueh-po-lo-heh (September 21-22, 1890),” 
S elected Works of Marx and Engels , Vol. 4, Jen-min ch’u-pan- 
she, 1972, p. 477. 

9) "On Revolution of Our Country," Complete Works of 
Lenin , Vol. 33, pp. 433-434. 

10) "On Coalition Government," Sele ct ed W orks of Mao Tse- 
tung , Vol. 3, Jen-min ch'u-pan-she, p. 981. 

11) "On Contradiction," Selected Work s of M ao Ts e-tung, 
Vol. 1, Jen-min ch'u-pan-she, 1968, p. 300. 

12) Marx, Critique of the Gotha Prog ram, Selected Wo rks 

of Marx and Engels , Vol. 3, Jen-min ch'u-pan-she, 1972, p. 21. 

13) Ibid., p. 10. 

14) "Economics and Politics in the Period of Proletarian 
Dictatorship," S elected Works of Lenin , Vol. 4, Jen-min ch'u- 
pan-she, 1972, p. 84. 

15) Quoted from "Khrushchev's Fake Communism and Its 
Lesson for World History," Jen-min ch'u-pan-she, 1964, p. 52. 

16) Quoted from Hung-ch'i [Red Flag], 1969, No. 5. 

17) Quoted from Hung-ch'i, 1971, Nos. 7-8. 




250 Fundamentals of Political Economy 


18) "On the Correct Handling of Contradictions among the 
People,” Selected Readin g s from the Works of M ao Tse-tung, 
Part 1, Jen-min ch'u-pan-she, 1965, p. 336. 

19) State and Revolution , Selected Work s of Lenin , Vol. 3 
Jen-min ch'u-pan-she, 1972, p. 256. 

20) "On the Correct Handling of Contradictions among the 
People," p. 336. 

21) Ibid., p. 352. 

22) Quoted from Hung-ch'i , 1967, No. 10. 

23) Quoted from Wang Hung-wen, ’’Report on the Revision of 
the Party Constitution," Collecte d D ocumen ts fr om the Tenth 
National Congress of the Chinese C ommunist Party , Jen-min 
ch'u-pan-she, 1973, p. 43. 

24) Quoted from Hung-ch'i, 1967, No. 7. 

25) Engels, Anti-Duhring , p. 330. 

26) "The Fourth Anniversary of the October Revolution," 
Selected Works of Lenin, Vol. 4, Jen-min ch'u-pan-she, 1972, 
p. 570. 

27) Quotations from Chairman Mao. Quoted from Jen-min 
jih-pao [People's Daily], April 11, 1966. 

28) Engels, Anti-Duhring, p. 323. 

29) "On the Correct Handling of Contradictions among the 
People," p. 363. 

30) "What to Do?" Selected Works of Lenin , Vol. 1, Jen- 
min ch'u-pan-she, 1972, p. 241. 






13 

The Socialist System of Public Ownership 
Is the Basis of 

Socialist Production Relations 


The System of Socialist State Ownership and 
Collective Ownership by the Laboring Masses* 


After the proletariat seizes political power, it is necessary 
to systematically transform the system of private ownership 
of the means of production into a socialist system of public 
ownership in order to eliminate the causes of capitalism and 
all other exploitative systems and to establish a socialist eco¬ 
nomic basis. This is an important step in consolidating pro¬ 
letarian dictatorship and defeating capitalism with socialism. 

The Socialist System of State Ownership Js 
t he M a in Economic Basis of Proletari an Dicta torship 

The Proletari at and the L abori ng Pe op le Must 
Control the Means of Production 


In the past several thousand years, the fundamental reason 
for the exploitation and oppression of the laboring people by the 
slave owner, the feudal landlord, and the capitalist was that the 

*She-hui-chu-i kung-yu chih shih she-hui-chu-i sheng-ch’an 
kuan-hsi ti chi-ch’u — she-hui-chu-i kuo-chia so-yu chih ho 
lao-tung ch'un-chung chi-t'i so-yu chih. 


251 



252 Fundamentals of Political Economy 


means of production were not in the hands of the laboring peo¬ 
ple. "In order to force people to engage in any form of slave 
labor, it is necessary to assume that the oppressor controls the 
means of production. Only by relying on these means of pro¬ 
duction can the enslaved be manipulated." (1) Successive gen¬ 
erations of laboring people launched various forms of struggle 
in an attempt to take the means of production into their own 
hands, but for historical reasons, all their attempts failed. In 
capitalist society, the proletariat nurtured and tempered by 
capitalist big industries began to emerge. This class lost all 
control over the means of production. Aside from the chains 
on his neck, the worker had absolutely nothing else. With the 
increasing intensification of the contradictions between the 
private character of capitalist ownership of the means of pro¬ 
duction and the social character of production, the possibility 
of the proletariat controlling the means of production developed. 

However, the exploiting class is never willing to give up ex¬ 
ploitation. They not only abused the state machinery to protect 
their private ownership of the means of production, but also 
concocted all sorts of fallacies in the ideological sphere. For 
example, they said that the poverty of the worker was due to the 
rapid increase in population, the lack of a "just and reasonable 
principle of distribution," and so forth, vainly attempting to de¬ 
ceive and dupe the laboring people so they would not touch the 
bourgeois ownership of the means of production or control the 
means of production. The revolutionary teachers of the pro¬ 
letariat denounced this sort of fallacy. They pointed out that 
the root cause of the exploitation and enslavement of the labor¬ 
ing people was that the means of production were not in the 
hands of the laboring people but were instead in the hands of the 
exploiting class. The first sentence in the "Gotha Program" 
written during the workers' movement of Germany in the 1870s 
under the influence of Lassalle was: "Labor is the source of all 
wealth and culture." On the surface, "labor" was accorded a 
very high position, but Marx at once saw the theoretical error 
of this statement. He pointed out that labor could create wealth 
and culture only by combining with the means of production. 



Socialist Public Ownership and Production Relations 253 


Without the means of production and without ownership of the 
means of production, what would happen to labor? Marx sharply 
pointed out: "A person who has no other property besides his 
labor power will always be enslaved by other people who possess 
the means of production, regardless of the society or culture. 

He can labor and exist only at the mercy of other people.” (2) 

The theory of Marxism concerning the necessity for the pro¬ 
letariat to replace the system of private ownership under cap¬ 
italism by the system of public ownership under socialism be¬ 
fore it can free itself has theoretically and politically smashed 
the exploiting class’s insane capitalist conspiracy to monopolize 
forever the means of production and to exploit and enslave the 
laboring people. It has pointed out the correct direction of 
struggle for the proletariat. 

The development of the capitalist society makes it possible 
for the proletariat and the laboring people to collectively possess 
the means of production. To fully realize this possibility takes 
a fairly long historical process. The proletariat must first 
crush the bourgeois state machinery and establish a proletarian 
dictatorship before it can ’’eliminate the cause of poverty and 
sow seeds of wealth,” transform the system of private owner¬ 
ship of the means of production into a system of public owner¬ 
ship, and take the means of production into its own hands. Only 
starting at this point will all exploitative systems be funda¬ 
mentally negated and will the proletariat and the laboring peo¬ 
ple be liberated economically and be on the socialist road to 
common affluence. On this road, there will still be plenty of 
struggles. Only by persistently and firmly holding the fate of 
the socialist economy in its own hands can the proletariat create 
favorable material conditions for the elimination of all classes 
and class disparities and the realization of the great ideal of 
communism. Once the means of production are lost and the 
fate of the socialist economy is passed into the hands of the 
bourgeoisie and its agents in the Party, the socialist economy 
will deteriorate and the proletariat and the laboring people will 
once again become ’’shiveringandhungry slaves." This possibility 
exists throughout the whole historical stage of socialist society. 



254 Fundamentals of Political Economy 


Confiscation and Redemption Are Ways 
to Establish the System of Socialist 
State Ownership 

Marx and Engels pointed out as early as over a hundred years 
ago that after the proletariat seizes political power, M it will 
make use of its political power to gradually seize all the bour¬ 
geoisie 1 s capital and put all the means of production into the hands 
of the state, namely, the proletariat, the ruling class.*’ (3) 

Because of the highly developed social nature of the productive 
forces under capitalism, it requires a social center which will 
centrally operate the departments and enterprises in order to 
overcome the contradictions that may arise between the social¬ 
ization of production and the [inherited] capitalist private 
ownership. This social center is the socialist state under pro¬ 
letarian dictatorship. Only by first establishing a socialist 
system in which the state owns the means of production and 
the proletariat and the laboring people hold firmly to the eco¬ 
nomic life-line through their own state apparatus can the capi¬ 
talist exploitative system be completely eliminated. 

Then, what are the means by which the proletariat can trans¬ 
form the bourgeois ownership of the means of production into 
a socialist system of state ownership? According to the ex¬ 
perience of the international communist movement and the 
Chinese experience, after the proletariat seizes political power, 
big enterprises are immediately socialized, while medium 
and small enterprises are gradually transformed. 

In general, after the proletariat seizes political power, all 
enterprises, big or small, coexist. Big capital represents the 
most reactionary [form of] production relations, controlling 
the lifeblood of the national economy and seriously impeding 
the development of social productive forces. It is also the main eco¬ 
nomic substructure of bourgeois reactionary rule. Immediately 
after the seizure of political power, if the proletariat fails 
to control the national economy and lets the big capitalists take 
it over, the proletariat can never consolidate its power. In 
summing up the experience of the Paris Commune, Lenin pointed 



Socialist Public Ownership and Production Relations 255 


out that one of the two mistakes that buried the brilliant achieve¬ 
ments obtained by the Paris Commune was that big enterprises 
like the bank, which affected the life pulses of the national econ¬ 
omy, had not been seized by the proletariat. Therefore, big 
capital must be immediately confiscated by the socialist state. 
Big capital in China was the bureaucratic capital. This was 
the comprador and feudal state monopoly capital possessed by 
the bureaucratic bourgeoisie headed by Chiang Kai-shek. 
Chairman Mao made a penetrating analysis of the reactionary 
nature of this capital and pointed out: "The four big family 
clans of Chiang, Sung, K'ung, and Ch'en amassed immense 
wealth amounting to ten to twenty billion dollars in the twenty 
years of their rule and monopolized the lifeblood of China’s 
economy. Monopoly capital, combined with state political 
power, became state monopoly capitalism. This monopoly 
capitalism was closely associated with foreign capitalism, the 
domestic landlord class, and old rich peasants to become a 
comprador and feudal state monopoly capitalism." (4) In the 
light of the reactionary nature of bureaucratic capital, our 
Party clearly stipulated early in the process of the democratic 
revolution the policy of confiscating bureaucratic capital and 
"nationalizing it by the People’s Republic led by the proletar¬ 
iat." (5) This confiscation of bureaucratic capital was gradually 
realized with the victorious development of the liberation war. 
The confiscation of bureaucratic capital, which accounted for 
80 percent of the fixed capital assets in China's manufacturing 
and transportation industries before the liberation, eliminated 
the major portion of China’s capitalist economy and put the 
proletarian political power in control of the lifeblood of the 
national economy. The economic basis of socialism was thus 
established, creating favorable conditions for the development 
of the socialist revolution and socialist construction. 

After the proletariat seizes political power, confiscates big 
capital, and establishes a socialist economic basis, it is pos¬ 
sible to gradually subject medium and small capital to socialist 
transformation through redemption and transform the capitalist 
system of ownership of the means of production into a socialist 



256 Fundamentals of Political Economy 


system of state ownership. The class natures of medium and 
small capital are the same as that of big capital. They are all 
embodied in the relation of the laboring people being exploited 
by the capitalist; they have interests contrary to those of the 
laboring masses and are the objects of socialist revolution. 
However, there is still some difference among them, because 
medium and small capital often possess the strong desire to 
develop capitalism but at the same time can also be coerced 
into redemption by the proletariat under certain conditions. 
Marxism believes that ’’under certain conditions, the worker 
will never refuse to redeem from the bourgeoisie.” (6) Once 
the proletariat has seized political power and has controlled 
the lifeblood of the national economy, it will be advantageous 
to the proletariat if these capitalists can be coerced to accept 
a redemption policy of the proletariat and transform their cap¬ 
italist enterprises into socialist enterprises. 

In China, the national bourgeoisie possessing medium and 
small capital assumed a dual character. In the period of demo¬ 
cratic revolution, it assumed a revolutionary character as well 
as a compromising character. In the period of socialist revolu¬ 
tion, it can be coerced into accepting socialist transformation, 
but it also has the strong reactionary desire to develop capital¬ 
ism. The industrial and commercial enterprises operated by 
this class played a dual role in the reconstruction period of 
China's national economy. They played a constructive role in 
increasing production needed by the national economy and the 
people's livelihood, enlarging economic exchanges between the 
urban and rural areas, and maintaining employment. But they 
also exploited the worker and did anything for profit, thus play¬ 
ing a negative role in socialist reconstruction and the people's live¬ 
lihood. In the light of the dual character of the national bourgeosie 
and the dual role of the national capitalist economy, our Party for¬ 
mulated a policy to utilize, restrict, and transform national capital¬ 
ist manufacturing and commercial enterprises, namely, utilizing 
their constructive role in the national economy and the people's 
livelihood, restricting their negative role, and gradually trans¬ 
forming them into a part of the socialist state economy. 



Socialist Public Ownership and Production Relations 257 


The socialist transformation of capitalist manufacturing and 
commercial enterprises in China was conducted through various 
forms of state capitalism. This state capitalism was "one that 
could be restricted and whose scope of operation could be regu¬ 
lated" (7) by the state under proletarian dictatorship. The pri¬ 
mary form of China’s state capitalism consisted of processing, 
ordering, unified procurements, and contract marketing in man¬ 
ufacturing and of purchasing and distribution by commission in 
commerce. In this form, the capitalist economy could be re¬ 
stricted to a certain extent in its direction of production and 
operation and in the degree of exploitation. Even so, this form 
did not change the nature of possession and control over the 
means of production by the capitalist and could not fundamentally 
resolve the antagonistic contradiction of the capitalist produc¬ 
tion relations obstructing the development of the productive 
forces. With the development of China’s social productive 
forces, the objective requirement was to turn primary state 
capitalism into advanced state capitalism, namely, joint state- 
private operation. In joint state-private enterprises, the state 
sent cadres to do leadership work. They managed the enter¬ 
prise by relying on the working masses and in accordance with 
state plans. This in effect forced the capitalist to give up his 
control of the means of production in the enterprises. The ex¬ 
ploitation of labor by capital was severely restricted. This ad¬ 
vanced form of state capitalism was divided into two stages in 
China's practice, namely, joint state-private operation in in¬ 
dividual enterprises and then in whole industries. In the stage 
of joint operation in individual enterprises, the capitalist par¬ 
ticipated in profit distribution according to his share in the 
total capital of the enterprise. The profit obtained by the capi¬ 
talist increased with the development of production. This was 
unfavorable to the full mobilization of labor enthusiasm among 
workers and to the accumulation of state capital. After the 
entire industry was put under joint state-private operation, the 
capitalist was allowed to receive only a fixed dividend, that is, 
fixed interest (about 5 percent per annum) for a specific period 
of time, according to his share of the fixed capital valued prior 



258 Fundamentals of Political Economy 


4 

to the state-private joint operation. Thus, the capitalist’s right 
of ownership of the means of production was expressed exclu¬ 
sively by a fixed dividend according to the size of his shares. 
Such joint state-private enterprises were basically socialist 
enterprises. At the end of the period in which fixed interest 
was payable to the capitalist as stipulated by the state and no 
more fixed interest was paid out, state-private enterprises be¬ 
came enterprises under the full-fledged socialist state owner¬ 
ship system. 

Under proletarian dictatorship, there is no difference between 
the transformation of medium and small capital and that of big 
capital. But this does not imply the absence of class struggle. 

In fact, acute class struggle between the proletariat and the 
bourgeoisie runs through the whole process of the socialist 
transformation of capitalist industry and commerce. This 
struggle is manifested as a struggle between restriction and 
counterrestriction, transformation and countertransformation. 

In the spring of 1950, in order to stabilize prices, there was a 
struggle against speculative activities. In 1951, there was the 
"Five Anti" struggle against bribery, tax theft and evasion, 
theft of state property, shoddy workmanship and inferior mate¬ 
rials, and theft of state economic secrets. In 1957, there was 
a struggle against the frantic attacks from the rightists. These 
were acute class struggles. These class struggles were also 
reflected in the Party itself as struggles between the two lines. 
The revisionist clique of Liu Shao-ch’i repeatedly peddled the 
nonsense that capitalist "exploitation is meritorious" and op¬ 
posed the socialist transformation of capitalist industry and 
commerce in an attempt to preserve capitalist influence. The 
revisionist clique of Kao Kang and Jao Shu-shih, on the other 
hand, conspired to seize supreme Party and state power to meet 
the needs of the bourgeois opposition to socialist transforma¬ 
tion. Under the leadership of the Party Central Committee 
headed by Chairman Mao, the conspiracies of these renegades 
were crushed in time, their revisionist lines were criticized, 
and a victory in the socialist transformation of'Capitalist in¬ 
dustry and commerce was finally won. This fact demonstrated 



Socialist Public Ownership and Production Relations 259 


that only by firmly adhering to the struggle of the proletariat 
against the bourgeoisie, the Marxist line against the revision¬ 
ist line, and effectively discouraging a handful of reactionary 
capitalists and their agents in the Party who opposed the so¬ 
cialist revolution and who were hostile to and sabotaged the so¬ 
cialist construction could the national bourgeoisie be forced to 
gradually accept socialist transformation. 

The Socialist Syste m o f State Ownership 
Possesses Immense Superiority 


The replacement of capitalist private ownership by socialist 
state ownership represents a revolutionary leap in production 
relations. The socialist system of state ownership is a public 
ownership system in which both the means of production and 
the products are possessed by the proletarian state represent¬ 
ing the whole laboring people. The appearance of the socialist 
system of state ownership shows that the liberated laboring 
people have not only become the ruling class of society, but 
have also become masters of the economy. 

In China, the scope of socialist state ownership includes 
mineral deposits, rivers, and territorial waters; forests, 
virgin land, and other natural resources designated to the state 
by law; and enterprises such as railways, postal and communi¬ 
cations services, banks, state plants, farms, and commerce. 

As the representative of the whole laboring people, the state 
owns the means of production and sees that they are allocated 
rationally and in a unified manner. This creates a new situa¬ 
tion in human history in which, for the first time, the national 
economy is systematically developed, and it paves the way for 
the development of social productive forces. 

The socialist state ownership system is a socialist public 
ownership system that conforms to the highly social nature of 
production. In modern industries, departments and enterprises 
are interconnected and mutually dependent. They are all in¬ 
tegral organic constituents of the whole social production. The 
appearance of the socialist system of state ownership is an in- 



260 Fundamentals of Political Economy 


evitable result of the contradiction between the highly social 
productive forces and capitalist private ownership in modern 
industries. Only with socialist state ownership can the con¬ 
tradictions between the social nature of production and the pri¬ 
vate ownership of the means of production in the capitalist so¬ 
ciety and the contradiction between the organized nature of pro¬ 
duction in individual enterprises and the chaotic nature of pro¬ 
duction in the whole society be resolved; only thus can the seri¬ 
ous waste and destruction of productive forces and products due 
to the capitalist system and the extravagant waste practiced by 
the bourgeoisie and its political representatives be eliminated. 
The large quantities of the means of production and products 
thus saved for the whole society can be used to promote a more 
rapid development of the productive forces. 

The state economy based on the socialist system of state 
ownership controls the lifeblood of the national economy. It 
possesses modern industries and transportation industries. 

State-operated industries furnish large quantities of machines, 
materials, equipment, fuels, and motive power to promote 
technical improvement in various departments of the national 
economy. They furnish large quantities of tractors, harvesters, 
transport equipment, electricity, fuels, chemical fertilizers, 
and pesticides to promote agricultural mechanization. They 
also accumulate large quantities of capital for the economic, 
cultural and defense constructions of the state. The socialist 
state economy is an economic factor that occupies a leading 
role in the whole national economy. It is the material basis 
from which the state pursues socialist revolution and construc¬ 
tion. The socialist transformation of agriculture, the handi¬ 
craft industry, and capitalist industry and commerce in China 
was realized under the leadership and guidance of the state 
economy. After the socialist transformation was basically com¬ 
pleted, the consolidation and development of the collective econ¬ 
omy was also related to the leading role of the state economy. 
The socialist state economy is a strong material force for con¬ 
solidating proletarian dictatorship. 

In agriculture, the economy under the socialist state owner- 



Socialist Public Ownership and Production Relations 261 


ship system is mainly the state farm. In China, the state farm 
assumes some roles different from the collective economy: 

(1) In addition to capital accumulated by the farm itself, invest¬ 
ment can also come directly from the state when necessary to 
accelerate agricultural mechanization to permit the state farm 
to play a leading and demonstrating role. (2) The state farm is 
an important base for the state to conduct agricultural scientific 
experiments. Scientific experiments that require more spe¬ 
cialized research personnel, more funds, and a long period to 
arrive at useful results often cannot be conducted by the col¬ 
lective economy in the countryside because of manpower, mate¬ 
rial, and financial constraints. The state farm, on the other 
hand, can concentrate manpower, material resources, and funds 
under a unified plan to conduct various scientific experiments 
and extend the useful results — superior strains and advanced 
experience — to agricultural people’s communes in good time. 

(3) The state farm is superior to the collective economy in the 
large-scale reclamation of virgin land, afforestation, and lum¬ 
bering. 

In China, there is still another form of the socialist state 
ownership system. This is the production and construction 
military corps. It is a comprehensive economic unit under the 
state ownership system which includes agriculture, industry, 
transportation, and construction. It is usually established in 
frontier areas with extensive lands and sparse population and 
performs an important task in building and defending the frontier 
region and strengthening national defense. The old workers, 
revolutionary cadres, and educated youths working in the pro¬ 
duction and construction military corps are an industrial army 
engaged in economic construction and also a strong combat 
army in defending the frontier region. This form of economy 
under the state ownership system assumes a special significance 
in consolidating proletarian dictatorship. 



262 Fundamentals of Political Economy 


There Will Be No Completed Socialism 
without Agricultural Socialization 

It Is Necessary to Subject the Smal l Peas ant 
Economy to Socialist Transformation 


After the proletariat seizes political power, it is often faced 
with a large number of individual economies in addition to 
highly social capitalist economies. These economic components 
can be found in agriculture, the handicraft industry, transporta¬ 
tion, and commerce but are most numerous and widespread in 
agriculture. Those participating in individual economic activi¬ 
ties are individual laborers. The individual household is a unit 
of production and operation. Though they do possess some 
negligible amount of the means of production, their lot is un¬ 
certain, and they can be reduced to bankruptcy at any moment 
by the capitalist economy. When the proletariat overthrows 
bourgeois rule and establishes a socialist state ownership sys¬ 
tem of the means of production, can the individual economies 
be allowed to continue their operation ? No. Chairman Mao 
said, "Socialism is not completely consolidated without agri¬ 
cultural socialization." (8) Here, what we have to analyze is 
the issue of what road individual agricultural economies should 
follow under the socialist condition, because the road followed 
by individual agricultural economies is also in principle the 
road followed by other individual economies, such as the in¬ 
dividual handicraft industry. 

The socialist state ownership system established by the pro¬ 
letariat after the seizure of political power is the economic 
basis of the state under proletarian dictatorship. But, as a form 
of private economy, the small peasant economy is in conflict 
with the socialist public ownership system and with the super¬ 
structure of proletarian dictatorship. Because of this, the small 
peasant economy based on private ownership is a hotbed of cap¬ 
italism. It will certainly polarize the peasantry into a majority 
of poor peasants and farm laborers and a minority of rich peas¬ 
ants who constitute the bourgeoisie in the countryside. Lenin 



Socialist Public Ownership and Production Relations 263 


pointed out, ’’Small-scale production regularly, continually, 
spontaneously, and abundantly produces capitalism and the 
bourgeoisie.” (9) In China's people's democratic revolution, 
thoroughly reforming the land system, confiscating land from 
the feudal class, and distributing it to the peasants in order to 
liberate the broad masses of peasants from the feudal system 
was a great victory. But after land reform, there is still a 
question of where the individual peasants should go. Should 
they follow the capitalist road or the socialist road? After 
China’s land reform, the following conditions appeared within 
a few years: Spontaneous capitalist tendencies developed 
steadily. New rich peasants appeared everywhere, and many 
rich middle peasants tried very hard to become rich peasants. 
Many poor peasants were still suffering from poverty because 
of insufficient means of production. Many of them were in 
debt. Some had to sell or rent their land. These conditions 
demonstrated that if after land reform the proletariat did not 
immediately lead the broad masses of peasants to take the so¬ 
cialist road and subject the small peasant economy to socialist 
transformation in good time but instead let it polarize, then 
those rich middle peasants who were bent on taking the capital¬ 
ist road would be further and further removed from the inter¬ 
ests of the working class, and those peasants who had recently 
lost their land again and were still beset by poverty would also 
complain that the proletariat did not rescue them and help them 
solve their problems. Thus the worker-peasant alliance es¬ 
tablished on the basis of land reform would face the danger of 
collapse. It would also threaten proletarian dictatorship and 
the consolidation of the socialist economic basis. 

After land reform, the small peasant economy based on pri¬ 
vate ownership played a certain role in recovering and develop¬ 
ing agricultural production. But it was, after all, a backward 
production relation. Individual and scattered operation made 
it impossible to adopt advanced techniques and modern farm 
tools, powerless against natural calamities, and impossible to 
sustain expanded reproduction. Therefore, it was not capable 
of satisfying the socialist economy's demand for commodity 



264 Fundamentals of Political Economy 


food grain, industrial raw materials, and increased labor power; 
nor could it provide a large domestic market for industrial de¬ 
velopment, and it was thus in sharp conflict with socialist in¬ 
dustrialization. To resolve this contradiction, it was necessary 
for the proletariat to take suitable measures to lead the scat¬ 
tered and backward small peasant economy onto the socialist 
road. 

How can the small peasant economy be led onto the socialist 
road? 

Ge tting Organized Is a Necessary Road 
for the Socialist Transfo rmation of the 
Small Peasant Economy 

The peasant is a laborer and is an ally of the proletariat. 

The means of production privately owned by the individual peas¬ 
ant cannot be expropriated. Engels once pointed out: ,r When we 
control the state power, we will never use force to expropriate 
the small peasant (it is the same whether the expropriation is 
paid for or not) as we must do with the big landowners. Our 
task with the small peasant is first of all to convert private 
production and possession into production and possession by 
the cooperative, not through force, but through demonstration 
and social assistance. 11 ( 10) This is to say, agricultural co- 
operativization is realized by getting organized. "This is a 
necessary road through which the people become liberated and 
a necessary road from poverty to affluence." (11) In China, 
the broad masses of poor and lower-middle peasants were quite 
susceptible to socialist transformation. Among them was an 
immense activism for the socialist road. Part of the rich mid¬ 
dle peasants were skeptical of the socialist road, while the 
landlords and rich peasants tried hard to sabotage it. There¬ 
fore, on the question of whether agricultural cooperativization 
should be implemented, there existed from the very beginning 
a serious struggle between the socialist and the capitalist 
roads. This struggle was manifested as a serious struggle 
between the two lines when it was reflected in the Party itself. 




Socialist Public Ownership and Production Relations 265 


The Liu Shao-ch’i and Ch'en Po-ta clique, representing the 
interests of the bourgeoisie and the rich peasants, proposed a 
revisionist line of "mechanization first, cooperativization 
later." They attacked with full force, saying that to realize co¬ 
operativization before mechanization was "erroneous, danger¬ 
ous, and illusory agricultural socialism," in a vain attempt to 
lead the individualistic economy onto the evil road of capitalism. 
The Party Central Committee headed by Chairman Mao reso¬ 
lutely defended the interests of the proletariat and the poor and 
lower-middle peasants. It analyzed the actual conditions of 
China’s countryside and formulated a basic Party line for agri¬ 
culture: the first step was to implement agricultural collec¬ 
tivization, and the second step was to achieve agricultural 
mechanization on the basis of agricultural collectivization. 

This was a Marxist line. To counter the fallacies peddled by 
Liu Shao-ch’i and company, Chairman Mao pointed out, "Under 
the present conditions in our country, we must have coopera¬ 
tivization before we can have massive mechanization (in capi¬ 
talist countries agriculture has turned into capitalism)." ( 12) 
Chairman Mao's revolutionary line was thoroughly imple¬ 
mented in China. In the process of agricultural cooperativiza¬ 
tion, the whole Party firmly relied on the poor and lower- 
middle peasants to unit solidly with other middle peasants to 
wage a resolute struggle against the landlords and the rich 
peasants and effectively boycotted the revisionist line of the 
Liu Shao-ch’i clique. As a result, agricultural cooperativiza¬ 
tion was realized triumphantly in a very short time. 

The process of China's socialist transformation of agriculture 
was the process of contradiction between the production rela¬ 
tions and the productive forces in the countryside. The process 
of transformation went through three stages, proceeding step 
by step one after another. In the beginning, mutual-aid teams 
with certain socialist elements were organized to train the 
peasants in collective labor in order to demonstrate that their 
production would increase faster than that of the individual 
operations. But there was a contradiction between group labor 
and scattered operation in the mutual-aid team. Had this con- 



266 Fundamentals of Political Economy 


tradiction not been resolved, it would have been difficult to 
further exploit the superiority of getting organized. At that 
time, guided by circumstances, the peasants were led to organize 
primitive agricultural production cooperatives of a semisocial¬ 
ist nature. In these primitive cooperatives, privately owned 
land was jointly operated by the cooperative, while privately 
owned livestock and large farm tools were jointly used by the 
cooperative, thus resolving the contradiction between group 
labor and scattered operation in the mutual-aid team. Produc¬ 
tion was further promoted. But the primitive cooperative still 
retained "land dividends" and certain remuneration for the use 
of privately owned livestock and large farm tools. The private 
ownership system of the means of production had not been 
abolished. There still existed a contradiction between joint 
operation and collective labor and the private ownership of 
land and other means of production. Had this contradiction not 
been resolved, the activism of the broad poor and lower-middle 
peasants would not have been fully mobilized. At that time, 
guided by circumstances, the Party once again led the peasants 
to form completely socialist advanced agricultural production 
cooperatives. Based on the system of collective ownership of 
the means of production by the laboring masses, the advanced 
cooperative implemented the socialist principle of "from each 
according to his ability and to each according to his labor." It 
was a completely socialist collective economy. The policy of 
proceeding phase by phase according to the actual circumstances 
was instrumental in gradually accustoming the peasant to col¬ 
lective labor and collective operation, getting him to relinquish 
the concept of private ownership, and mobilizing his socialist 
activism to willingly join the cooperative. Therefore, in the 
whole process of cooperativization, not only was agricultural 
production not reduced, it increased year after year, fully 
demonstrating the incomparable correctness of Chairman Mao’s 
revolutionary line. 

After completing land reform, the socialist transformation 
of agriculture was basically completed in China’*s broad country¬ 
side in less than four years. Agricultural cooperativization 



Socialist Public Ownership and Production Relations 267 


was realized, and the vast individual ownership system was 
transformed into a socialist collective ownership system of the 
laboring people. The realization of agricultural cooperativiza- 
tion further liberated the productive forces, strengthened the 
socialist stronghold of the proletariat in the broad countryside, 
consolidated the worker-peasant alliance, and consolidated pro¬ 
letarian dictatorship. The implications of this were profound. 

China' s Rural People*s Commune Is an 
Important Development of the Collective 
Ownership System 

After the establishment of the socialist system of collective 
ownership by the laboring masses, there followed a process of 
gradual development and improvement. With the development of 
the productive forces and the elevation of the socialist conscious¬ 
ness of the laboring masses, small collectives developed into 
bigger collectives, and collectives with a lesser degree of public 
ownership developed into collectives with a higher degree of 
public ownership. This is an objective law. In 1958, under the 
guidance of the Party's General Line for Socialist Construction, 
under the impetus of the Great Leap Forward, and in accordance 
with the need for developing the productive forces in the country¬ 
side, China's rural people's commune rose over the broad hori¬ 
zon of East Asia like an early rising sun. The broad masses of 
poor and lower-middle peasants dearly loved the people's com¬ 
mune. They wrote numerous folk songs to praise its birth. 

One of them went as follows: 

Individual operation is like a single plank bridge, 

It rocks three times with every step; 

Mutual aid is like a stone bridge, 

That does not stand up well to wind and rain; 

The iron bridge is not bad, 

But it cannot handle heavy traffic; 

The people’s commune is a golden bridge, 

That leads the way to Heaven. 



268 Fundamentals of Political Economy 


The scale of the people’s commune was one per hsiang, 
formed by merging several advanced agricultural production 
cooperatives in a hsiang. It is an organization combining ad¬ 
ministration with production and includes the worker, the peas¬ 
ant (including forestry, livestock husbandry, sidelines, and 
fishery), the trader, the student, and the soldier. It is the basic 
unit of China's socialist society in the countryside. It is also 
a basic unit of China’s government in the countryside. For a 
fairly long historical period to come, it will be the collective 
economic organization of socialism based on mutual aid and 
benefit. However, when the advanced agricultural cooperative 
developed into the people's commune, the scale of operation 
was expanded, and the share of the means of production owned 
by the public was also increased. Its characteristic was "big 
and public." This was an important development in China's 
socialist system of collective ownership by the laboring masses. 

At the present stage, the basic system of "three-level owner¬ 
ship with the production team as the basis" is in force in China’s 
rural people's communes. In the three-level ownership system, 
the collective ownership system at the commune and brigade 
levels is partial. The collective ownership system at the pro¬ 
duction team level is basic. The production team is the basic 
accounting unit in the people's commune. It has independent 
accounting and is responsible for all its profit and loss. It 
directly organizes production and distribution. This is because 
agricultural production at the present stage still basically re¬ 
lies on manual labor and draft animals. Although the degree of 
agricultural mechanization steadily increased after the estab¬ 
lishment of the people's commune, the condition of manual labor 
is still dominant over the country as a whole. At the present 
stage, it is generally appropriate to have twenty to thirty house¬ 
holds in a production team, forming a basic accounting unit for 
organizing production and distribution. This is favorable to 
organizing production and strengthening management, mobiliz¬ 
ing the socialist activism of the broad commune members, in¬ 
spiring them to be more concerned with the collective and 
strengthening the supervision of cadres. Above'the production 



Socialist Public Ownership and Production Relations 269 


team, there are the collective economies of the brigade and the 
commune. With the development of the collective economy in 
which the degree of socialization in these two levels is com¬ 
paratively high, it is financially possible to purchase large- and 
medium-size farm machinery, engage in rural capital construc¬ 
tion, such as water conservation and the running of small fac¬ 
tories and mining enterprises, and at key points, assist weak 
production teams to hasten the development of the collective 
economy. These activities are too big for the production team 
to carry out. Collective ownership with three different levels 
constitutes the basic unit of economic accounting of the rural 
people’s commune. It is an indivisible, integral unit. Such 
collective ownership comprising three levels is exceedingly 
flexible in coping with the different conditions and diversified 
demands accrued in developing rural productive forces and is 
therefore conducive to the rapid development of social produc¬ 
tivity. 

In the collective economy of China's rural people's commune, 
the commune member is permitted and encouraged to make use 
of his free time and holidays to engage in family sidelines (in¬ 
cluding self-retained land assigned to him) as long as the col¬ 
lective economy is first well taken care of, its development is 
not hindered, and it is in a dominant position. Family sidelines 
are remnants of the individual economy. But under socialism, 
they supplement the socialist economy and are subordinate to 
the economy based on the collective ownership system and the 
state ownership system. For a period of time during socialism, 
the retention of family sidelines by the commune member can 
help to fully utilize the labor power of the countryside, in¬ 
crease the social product, improve the livelihood of the com¬ 
mune member, and enliven the rural trade fair. But leadership 
must be strengthened to prevent aimless drift. 

The collective ownership system of China's rural people's 
commune with "three-level ownership and with the production 
team as the basis" will stay as it is for years to come. How¬ 
ever, with the gradual improvement of various conditions (for 
example, with a higher degree of agricultural mechanization, 



270 Fundamentals of Political Economy 


a smaller gap in the income among production teams, and the 
gradual elevation of the socialist consciousness of the broad 
commune members), China's rural people’s commune will 
gradually pass from the present ownership system based on the 
production team to a future ownership system based on the 
brigade and the commune, and then from there gradually to a 
socialist state ownership system. This will be a long process 
of gradual development. 

Like the collective ownership system in agriculture, the col¬ 
lective ownership system of the handicraft industry also in¬ 
volves a long process of passing from small collectives to big 
collectives and then from big collectives to a socialist state 
ownership system. 

The development of the collective ownership system from the 
small to the big, from the low to the high, and from collective 
ownership to state ownership is all based on a gradual improve¬ 
ment of the productive forces and the socialist consciousness 
of the people. It would be a mistake to attempt to change the 
situation in a hurry when the necessary conditions do not exist. 
It would also be a mistake to be content with the status quo when 
the necessary conditions do exist. These two tendencies will 
discourage the socialist activism of the masses and are un¬ 
favorable to the development of the productive forces. They 
may even impede the development of the productive forces. 

In the process of transforming the advanced agricultural pro¬ 
duction cooperative to the rural people’s commune in China, 
these two tendencies did exist. The appearance of the people's 
commune is a natural result of the economic and political de¬ 
velopment in China and is completely in line with the phenomena 
of objective laws. But the revisionist clique of Liu Shao-ch’i 
and Lin Piao maliciously attacked the formation of the people's 
commune as "premature and messy." When the strong tide of 
the people’s commune overwhelmed the countercurrent fanned 
up by them, they clamored for "a leap toward communism," 
urging the start of a "communist wind" in a vain attempt to 
sabotage the socialist character of the people's commune. From 
now on, there will be struggle between the two classes, the two 



Socialist Public Ownership and Production Relations 271 


roads, and the two lines in the development process of the econ¬ 
omy based on a socialist collective ownership system of the 
laboring masses. This is inevitable and not in the least sur¬ 
prising. 

Although the socialist collective ownership system of the 
masses and the state ownership system are both socialist public 
ownership, they are different. The economy's means of pro¬ 
duction under collective ownership are not the public property 
of the country's laboring masses, but are the property of the 
laborers of the cooperative. Therefore, manpower, materials, 
and financial resources are not transferable without compensa¬ 
tion between the state and the cooperative; nor are they trans¬ 
ferable without compensation between cooperatives. The exist¬ 
ing disparities in income levels between cooperatives cannot be 
artificially eliminated. The only way to do it is to help the low- 
income cooperatives to grasp revolution and raise labor pro¬ 
ductivity in order to gradually narrow the gap. 

The Socialist Public Ownersh i p System 
Consolidates and Develops through Struggle 


Th e Se rious Le sson o f t he Resto ra tion of 
the Capitalist O wnersh ip Sy stem in the 
Soviet Union 

Since the Khrushchev-Brezhnev renegade clique restored 
bourgeois dictatorship, the socialist public ownership system 
established under proletarian dictatorship has been completely 
transformed into a new system of ownership by the bureau¬ 
cratic monopolist bourgeoisie. This is a serious lesson. The 
event demonstrates that after the establishment of the socialist 
public ownership system, the two possibilities of advance in the 
communist direction or retreat in the capitalist direction still 
exist. 

Marxism tells us that the nature of the ownership system of 
the means of production is ultimately determined by which so¬ 
cial group possesses the means of production and which social 



272 Fundamentals of Political Economy 


groups they serve. How should we observe such possession 
and service? In C apita l, Marx quoted Aristotle’s remark that 
"the status of the master rests not so much on he who purchases 
the slave as on he who lords over him." Marx continued, "the 
status of the capitalist is established not so much by his owner¬ 
ship of the capital — which provides him the power to purchase 
labor — as by his power to employ the laborer, that is, the 
wage earner, in the process of production." (13) 

Today, a glimpse at the way the Soviet proletariat and labor¬ 
ing people are employed will demonstrate the substance of 
Soviet revisionism, that is, that Brezhnev and his associates, 
wearing a cloak of socialist public ownership, have usurped the 
Soviet people's means of production to serve the bureaucratic 
monopolist bourgeoisie. 

In the regulations governing the socialist state-operated pro¬ 
duction enterprises, the Soviet revisionists stipulate: "The 
authority over production and management shall be exercised 
by the manager (administrator or director) in conjunction with 
other responsible personnel designated in accordance with the 
division of their duties." The manager of the enterprise has 
the authority to determine the level of employment and the 
strength of the personnel; to recruit or dismiss employees; to 
grant awards or mete out penalties; to fix wage scales and 
bonuses; to sell, rent, or lease the means of production of the 
enterprise; and to appropriate various "economic incentive 
funds" which are stipulated by the Soviet revisionist leadership 
as being reserved for the enterprise’s own allocation. 

The Soviet revisionist "Regulations Governing the Model 
Collective Farms” stipulate that the chairman of the collective 
farm possesses the authority to rent, lease, or transfer the 
land owned by the state; to appropriate farm funds, or even to 
freely buy or sell the means of production, such as agricultural 
machines; and to decide the labor remuneration and bonuses of 
the farm members, hire outside people to work at the farm, 
and so forth. These "managers," or "farm chairmen," have 
this and that power. What powers do the laboring people have? 
None. Their ownership rights to the means of production have 



Socialist Public Ownership and Production Relations 273 


all been expropriated by the bureaucratic monopolist bourgeoi¬ 
sie. By reducing the laboring people of the Soviet Union to 
wage laborers "in the production process," the bureaucratic 
monopolist bourgeoisie has proved that it is the bureaucratic 
monopolist bourgeoisie. According to Soviet revisionist maga¬ 
zines, the monthly piecework wages of a lathe operator in a 
state enterprise in the Soviet Union are as low as 50 to 60 rubles. 
Medium wages are 70 to 80 rubles. But what the manager, 
plant director, and other bureaucratic monopolist bourgeois 
elements get in the way of wages, bonuses, subsidies, and other 
"legal" means is more than ten times, or even several tens of 
times, that of the worker. The net monthly income of an ordi¬ 
nary farmer is less than 60 rubles. But the monthly income of 
a farm chairman is generally about 300 rubles. Some reach 
more than 1,000 rubles. One old Soviet worker with more than 
thirty years of experience said: "We have a lot of millionaires 
here." "They are different from us not only in standard of liv¬ 
ing but also in language." A manager of the construction trust 
of the Soviet revisionist Ministry of Agriculture frantically ex¬ 
claimed: "The trust is my home. I am the master. I do what 
I like." The kind of tree determines the kind of flower, and the 
kind of class determines the kind of talk. From their different 
standpoints and different angles, the laboring people and the 
bureaucratic monopolist bourgeoisie demonstrate one point: 

The bureaucratic monopolist bourgeoisie has become the lords 
in production. Like the capitalists, they "do what they like." 

On the other hand, the broad masses of laboring people have 
been reduced to wage laborers in production. They are enslaved 
and exploited and are suffering miserably. 

The fact that the socialist public ownership system of the 
Soviet Union has completely degenerated is shocking. This 
demonstrates that after the socialist public ownership system 
is established, it will not automatically consolidate and become 
perfect; there will be a long process of struggle. 

The ownership system is not an object; it is a social relation¬ 
ship. The socialist public ownership system embodies, for the 
laboring people, a social relationship in which the means of pro- 



274 Fundamentals of Political Economy 


duction are equally possessed and everybody is a master. On 
the other hand, it also embodies a relationship in which the pro¬ 
letariat and the laboring people expropriate the expropriator 
and rule over and transform all members of the exploiting class. 
In these social relationships, the proletariat and the laboring 
people must consolidate their gains obtained through expro¬ 
priation, strengthen the rule over, and the transformation of, 
members of the exploiting class in order to consolidate and 
perfect the socialist public ownership system by constantly 
sweeping away the corrosion and sabotage of the exploiting 
class. On the other hand, the bourgeoisie and all exploiting 
classes will resist this kind of rule and transformation in order 
to transform the socialist public ownership system into a cap¬ 
italist private ownership system through constant corrosion and 
sabotage. The contradictions and the struggles between the 
proletariat and the bourgeoisie on the question of the ownership 
system are multifaceted. But they are mainly manifested in 
the struggle for leadership over the economy which is based on 
a socialist public ownership system. Whoever seizes leader¬ 
ship becomes the de facto master of the ownership relations. 
Once the leadership falls into the hands of the bourgeoisie or 
its agents, the socialist public ownership system not only can¬ 
not be consolidated or improved, it will certainly degenerate. 

It is exactly because a handful of persons in power in the Soviet 
Union taking the capitalist road has stolen the leadership of the 
economy based on a socialist public ownership system that the 
socialist public ownership system has been transformed into an 
ownership system of the bureaucratic monopolist bourgeoisie 
and that the proletariat and the laboring people of the Soviet 
Union have been transformed from masters of a socialist public 
ownership system into slaves of an ownership system of the 
bureaucratic monopolist bourgeoisie. Since the Khrushchev- 
Brezhnev renegade clique usurped the supreme power of the 
Soviet Union's Party and state, capitalism has been completely 
restored. 



Socialist Public Ownership and Production Relations 275 


Struggle for the Consolidati on and 
Development of the Socialist 
Public Ownership System 

After the establishment of socialist public ownership, the is¬ 
sue of the ownership system has still not been completely re¬ 
solved. There still exist the two possibilities of advancing to¬ 
ward socialism or retreating back to capitalism. This reveals 
to the proletariat and the broad masses of laboring people an 
historical task: they must constantly struggle for the consolida¬ 
tion and development of the socialist public ownership system. 

To consolidate and develop the socialist public ownership sys¬ 
tem, it is necessary first of all to ensure that the socialist eco¬ 
nomic leadership is in the hands of the Marxists and the broad 
laboring masses. 

The socialist public ownership system demonstrates that the 
proletariat and the laboring people are the masters of the means 
of production. But, how can one tell whether they are in fact 
masters of the means of production? That depends on their 
role in the production process. In capitalist society, the laborer 
is used in the production process as labor power by the capital¬ 
ist. Through the use of labor power, the capitalist extracts as 
much surplus value from the laborer as possible. The laborer 
is merely a paid slave. The capitalist is the real master. This 
leads to acute opposition between the worker and the capitalist. 
In socialist society, the role of the laborers in the production 
process is completely different. They participate in the pro¬ 
duction process as masters. They create wealth for society 
through conscious labor. Then, who organizes this production 
process? Ultimately, it should be the laborer himself. Nat¬ 
urally, this does not mean that all laborers directly organize 
and manage production. The broad laborers appoint representa¬ 
tives through the state and the collective, or they elect repre¬ 
sentatives to organize production. But here a problem arises: 

If the broad laborers delegate to their representatives the power 
to organize production, can these representatives represent the 
interests of the proletariat and the laboring people in organizing 



276 Fundamentals of Political Economy 


production? After the laborer has delegated his power to orga¬ 
nize production to a representative, is there any power left to 
the laborer himself? This problem has occurred in history. 

At the end of the primitive commune, public servants of society 
elected by commune members gradually became masters of so¬ 
ciety, and this finally led to the disintegration of the ownership 
system of clan communes and the emergence of private owner¬ 
ship. This reflected a progressive movement in history at that 
time. In today’s Soviet Union, those who organize production 
do not represent the interests of the proletariat and the labor¬ 
ing people at all. They represent instead the interests of the 
bureaucratic monopolist bourgeoisie. The socialist public 
ownership system of the bureaucratic monopolist bourgeoisie 
has become the economic basis of Soviet society. This is a big 
historical retrogression. Under China's proletarian dictator¬ 
ship, similar conditions have appeared in certain areas. Before 
the Great Proletarian Cultural Revolution, the real leadership 
of some units, though nominally under the socialist public owner¬ 
ship system, had been usurped by a handful of renegades, spe¬ 
cial agents, and capitalist-roaders. Or it was still in the hands 
of former capitalists. As a result of the Great Proletarian 
Cultural Revolution launched and led by Chairman Mao person¬ 
ally, the leadership of these units was returned to the broad 
laboring masses who held high the red banner that "it is justi¬ 
fied to rebel against the reactionary," and "lessons from history 
are noteworthy." The Tenth National Party Congress summed 
up rich experience and lessons and clearly pointed out: "Leader¬ 
ship in the base organization must be strengthened so that the 
leadership is really in the hands of the Marxists, the workers, 
the poor and lower-middle peasants, and other laboring masses. 
The task of consolidating proletarian revolution must be put into 
effect in every base unit." (14) This has decisive significance 
in consolidating and developing the socialist public ownership 
system. 

To ensure that the leadership of the enterprise under the 
state economy and the collective economy is in the hands of 
the Marxists, the proletariat and the laboring people must en- 



Socialist Public Ownership and Production Relations 277 


gage in a resolute struggle with the renegades, special agents, 
and capitalist-roaders who have usurped the leadership and win 
it back. This type of struggle cannot be resolved with one Great 
Cultural Revolution. In their futile restoration attempt, the 
bourgeoisie will try everything to usurp the leadership of the 
state and the collective economy. At the same time, the repre¬ 
sentatives (cadres of various levels) of the proletariat and the 
laboring people who control the leadership of the state and the 
collective economy must strengthen the transformation of their 
world outlook and try hard to become Marxists so that they 
can truly represent the interests of the proletariat and the 
laboring people. If they do not work hard in this direction, it 
is possible that under the influence of the bourgeois world out¬ 
look, they may go against the interests of the proletariat and 
the laboring people in the process of organizing production. 

Some people are interested in material incentives, profit, and 
restrictive measures in their operation and management of the 
socialist economy. In other words, they do not treat the labor¬ 
ing people as the masters of the socialist enterprise. This will 
inevitably impede and weaken the socialist public ownership 
system. If this trend continues, the socialist public ownership 
system will degenerate. In the Great Proletarian Cultural Rev¬ 
olution, the broad masses and cadres criticized and repudiated 
this tendency. But, under certain conditions, things that have 
been criticized and repudiated can appear again. At the begin¬ 
ning of 1974, some of the workers in the No. 5 Loading and Un¬ 
loading District of the Shanghai Harbor Affairs Bureau posted a big- 
character poster entitled "Be the Masters of the Wharf, Not the 
Slaves of Tonnage." Itpointedout: "The leadership does not treat 
the workers as masters of the wharf. Instead they are treated as 
the slaves of tonnage. This is a reflection of the revisionist 
line in running an enterprise." These words hit the crux of 
the consolidation and development of the socialist public owner¬ 
ship system and are of universal practical significance. 

In order that the leadership of the state economy and the 
collective economy really be in the hands of the Marxist, it 
must also really be in the hands of the workers, poor and lower- 



278 Fundamentals of Political Economy 


middle peasants, and other laboring masses. These two aspects 
are inseparable. Since the laboring masses are the masters 
of the socialist economy, it does not mean that they no longer 
have the right to interfere once the leadership has been dele¬ 
gated to a few representatives. The revisionist "one-head sys¬ 
tem" championed by the Soviet revisionists is an institutionali¬ 
zation of this viewpoint. Facts have demonstrated that this is 
a chloroform spread by the bourgeoisie and its agents in order 
to usurp leadership. Engels once pointed out: "The inevitable 
result of individual management of industries is private owner¬ 
ship." ( 15) If the leadership of the enterprise under the social¬ 
ist ownership system is not in the hands of the workers, poor 
and lower-middle peasants, and other laborers, the revision¬ 
ist "one-head system" will proliferate. Under the revisionist 
"one-head system," the laboring masses are in effect separated 
from the means of production. They listen to the orders from 
the "head." Without leadership over the enterprise, they are 
no longer masters of the enterprise. If this develops, they will 
be treated as pure labor power in the production process by the 
"head." The laboring masses will no longer have the right to 
question whether this production process serves the interests 
of the proletariat and the laboring people. This way, socialist 
enterprises will gradually slide into the mudhole of capitalism. 
But when leadership of the enterprise is really in the hands of 
the Marxists and the workers, poor and lower-middle peasants, 
and other laboring masses, the position of the laboring masses 
as masters of the enterprise will surely be guaranteed. As 
masters, they will fully mobilize socialist activism. If some 
bad people usurped leadership of the enterprise, the laboring 
masses would take it back under the Party's leadership. This 
has been proven more than once by the practice of China's so¬ 
cialist revolution, especially since the Great Proletarian Cul¬ 
tural Revolution. It will be proven again. 

The crux of the question concerning who controls the leader¬ 
ship of the socialist economy lies in whether or not the line im¬ 
plemented by the departments in charge of production operation 
or economic management represents the interests of the pro- 



Socialist Public Ownership and Production Relations 279 


letariat and the laboring people. The revisionist line always 
goes against the interests of the proletariat and the laboring 
people. It fosters material incentives, profit, and restrictive 
measures. On the other hand, according to socialist principles, 
the Marxist line always insists on having revolution guide pro¬ 
duction and strengthening operation management by relying on 
the masses as the masters. Therefore, firmly adhering to the 
Marxist line and criticizing and repudiating the revisionist line 
is the ultimate guarantee for the consolidation and development 
of the socialist public ownership system. 

To consolidate and develop the socialist public ownership 
system, it is also necessary to implement various policies of 
the Party. Party policies are concrete manifestations of the 
Party line. To firmly adhere to the proletarian revolutionary 
line, it is necessary to seriously implement various policies 
of the Party. For example, it is necessary to correctly handle 
the relations between the center and the locality to mobilize 
dual activism within the economy under the state ownership sys¬ 
tem, and it is necessary to correctly handle the relations between 
the state and the enterprise so that the enterprise can fully take 
the initiative in operation and management under the unified 
leadership of the state. Also, in the collective economy of the 
rural people’s commune, it is necessary to correctly implement 
the present stage’s basic system of "three-level ownership 
with the production team as the basis" in order to fully mobilize 
the socialist activism of the three-level collective economy of 
the commune, the brigade, and the production team. While 
acknowledging the existence of disparities among brigades, 
among teams, and among communes, we must strive to create 
favorable conditions narrowing such disparities in order to 
follow the socialist path to common affluence. 

To consolidate and develop the socialist public ownership 
system, socialist education must be strengthened. The socialist 
public ownership system is built on the basis of eliminating the 
private ownership system. But "remnants reflecting the old 
system and the old ideology will long stay in people’s minds 
and will not retreat easily." (16) This remnant of the old ide- 



280 Fundamentals of Political Economy 


ology based on the old private ownership system is manifested 
in many aspects. It is in conflict with the socialist public owner¬ 
ship system. Only by strengthening education on ideology and 
political line, constantly elevating the political consciousness 
of the broad cadres and masses, and firmly establishing the 
proletarian world outlook can the consolidation and develop¬ 
ment of the socialist public ownership system be effectively 
promoted. 

To consolidate and develop the socialist public ownership 
system, it is also necessary to enthusiastically develop social 
productive forces. The socialist public ownership system cre¬ 
ates favorable conditions for the development of social produc¬ 
tive forces, while the further development of social productive 
forces must provide a material basis for the further consolida¬ 
tion and development of the socialist public ownership system. 
The acceleration of socialist industrialization will strengthen 
the socialist state economy. The acceleration of agricultural 
mechanization and the constant development of agricultural 
productive forces will strengthen the collective economy and 
thus promote the further consolidation and development of the 
collective ownership system. Therefore, resolutely implement¬ 
ing the policy to "grasp revolution, promote production" and 
developing the socialist economy with greater, faster, and 
better results at lower costs are important conditions for the 
consolidation and development of the socialist public ownership 
system. 

The process of consolidating and developing the socialist 
public ownership system is a long process of struggle between 
the two classes, the two roads, and the two lines. The road of 
struggle is very long, the task is very heavy, and we must fight 
with all our strength! 

Major Study References 


Marx, Communist Manifesto . 

Lenin, "On Food Grain Tax," Selected Works of Lenin. 





Socialist Public Ownership and Production Relations 281 


Chairman Mao, "Report to the Second Plenum of the Seventh 
Central Committee of the Chinese Communist Party. 

Chairman Mao, "On the Correct Handling of Contradictions 
among the People,” Sections 3-4. 

Chairman Mao, "On Agricultural Cooperativization." 

Review Problems 


1. How does the socialist state ownership system emerge? 
Why do we say it is the main economic basis of proletarian 
dictatorship? 

2. Why do we say that socialism is not completely consoli¬ 
dated without agricultural socialization? Why did the rural 
people's commune of China adopt the system of "three-level 
ownership with the production team as the basis” at the present 
stage? 

3. How can the socialist public ownership system be con¬ 
tinually consolidated and developed? How do we consolidate 
and develop the socialist public ownership system? 

Notes 


1) Engels, Anti-Duhring , Selected Works of Marx and 
Engels, Vol. 3, Jen-min ch'u-pan-she, 1972, p. 201. 

2) Marx, Critique of the Gotha Program , Selected Works of 
Marx and Engels , Vol. 3, Jen-min ch'u-pan-she, 1972, p. 5. 

3) Communist Manifesto , Selected Works of Marx and 
Engels , Vol. 1, Jen-min ch’u-pan-she, 1972, p. 272. 

4) "The Present Situation and Our Tasks," Sel ected Works 
of Mao Tse-tung , Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1149. 

5) "Report to the Second Plenum of the Seventh Central 
Committee of the Chinese Communist Party," Selected Works 
of Mao Tse-tung , Vol. 4, Jen-min ch’u-pan-she, 1968, p. 1321. 

6) "On the Naivete of the ’Leftist’ and the Class Nature of 
the Petty Bourgeoisie," Selected Works of Lenin , Vol.3, Jen- 





282 Fundamentals of Political Economy 


min ch'u-pan-she, 1972, p. 548. 

7) "Political Report to the Central Committee of the Russian 
Communist Party (Bolshevik)” Selected Works of Lenin , Vol. 4, 
Jen-min ch'u-pan-she, 1972, p. 627. 

8) "On the People's Democratic Dictatorship," Selected Works 
of Mao Tse-tung, Vol. 4, Jen-min ch'u-pan-she, 1968, p. 1366. 

9) "'Leftist' Naivete'in the Communist Movement," Selected 
Works of Lenin, Vol. 4, Jen-min ch'u-pan-she, 1972, p. 181. 

10) Engels, "The Question of the French and German Peasant," 
Selected Works of Marx and Engels , Vol. 4, Jen-min ch'u-pan- 
she, 1972, p. 310. 

11) "GetOrganized!" Selected Works of Mao Tse- tung, Vol. 3, 
Jen-min ch’u-pan-she, 1968, p. 886. 

12) "On Agricultural Cooperativization," Selected Readings 
from the Works of Mao Tse-tung , (Type A), Jen-min ch'u-pan- 
she, 1965, p. 308. 

13) Marx, Capital, Vol. 3, Jen-min ch'u-pan-she, 1966, p. 438. 

14) Chou En-lai, "Report to the Tenth National Congress of 
the Chinese Communist Party," Collected Documents from the 
Tenth National Congress of the Chinese Communist Party , Jen- 
min ch'u-pan-she, 1973, pp. 32-33. 

15) Engels, "Principles of Communism," Sele cted Works of 
Marx and Engels , Vol. 1, Jen-min ch'u-pan-she, 1972, p. 217. 

16) Chairman Mao, "Notes on ’A Serious Lesson,' " Socialist 
Upsurge in China's Countryside , Vol. 1, p. 123. 




14 

Establish Interpersonal Relations 
according to Socialist Principles 


People’s Status and Their Interrelations 
in Socialist Production* 


People's status and their interrelations are an important 
component of production relations. After the establishment of 
the socialist public ownership system of the means of produc¬ 
tion, it is very important to shape the people’s status and their 
interrelations to be compatible with this form of ownership sys¬ 
tem. If this middle link of production relations is grasped and 
continually improved, the socialist public ownership system and 
distribution relations will continually be consolidated and de¬ 
veloped . 


People’ s Status and Their Interrelations 
Have Undergone a Fundamental Change 

The Socialist Public Ownership System Is 
a Negation of All Exploitative Systems 


In history, people's status and their interrelations in produc¬ 
tion have always been determined by the ownership system of 


*An-chao she-hui-chtf-i yuan-tse chien-li jen-men ti hsiang- 
hu kuan-hsi — jen-men tsai she-hui-chu-i sheng-ch’an chung 
ti ti-wei ho hsiang-hu kuan-hsi. 


283 



284 Fundamentals of Political Economy 


the means of production. The system of slave ownership deter¬ 
mined the relationship between the slave owner and his slaves. 
The ownership system of the feudal lords determined the rela¬ 
tionship between the landlord and the peasant. The ownership 
system of the capitalist determined the relationship between 
the capitalist and the worker. The relationship of exploitation 
between the capitalist and the worker is more obscure than the 
relationship between the slave owner and the slave or between 
the landlord and the peasant. Often this relationship involves 
goods and is manifested as the relationship among goods. For 
a long time, bourgeois economists have written books and fab¬ 
ricated theories on the relationships among goods in an attempt 
to conceal the reality of class antagonism among people. "Wher¬ 
ever the bourgeois economists saw a relationship among goods 
(commodity exchanges), Marx revealed a relationship among 
men." (1) ,T What economics studies is not things but inter¬ 
personal relations and ultimately interclass relations." (2) 

The interrelations in socialist production are established 
only after the proletariat and the broad masses of laboring peo¬ 
ple overthrow the bourgeois state machinery with violence and 
establish proletarian dictatorship and the socialist public owner¬ 
ship system of the means of production. 

In socialist society, the relationship which existed in the old 
society between the ruling and the ruled, with the working class 
and the collective farmers on one side and the bourgeoisie, the 
landlords, and the rich peasants on the other, has been re¬ 
versed. All exploitative relations have been negated. This re¬ 
versal and negation are the preconditions for transforming the 
private ownership system of the means of production into the 
socialist public ownership system. The socialist public owner¬ 
ship system is a coercive economic measure. In this system, 
the exploitative class is deprived of its means of exploiting 
the laboring people and is forced to accept transformation by 
the proletariat and the broad masses of laboring people. On the 
other hand, with the establishment of the socialist public owner¬ 
ship system, the proletariat and the broad masses of laboring 
people, once slaves in the old society, become masters of the 



Interpersonal Relations with Socialist Principles 285 


new society. From here on, the proletariat and the laboring 
people are in the ruling position in the socialist production pro¬ 
cess, and the bourgeoisie and all exploitative classes are in the 
position of being ruled. Socialist interrelations are to be estab¬ 
lished and developed on this basis. 

In the whole socialist historical stage, from beginning to end, 
there will exist the struggle between the proletariat and the 
bourgeoisie. On the one hand, the proletariat and the broad 
masses of laboring people will try hard to defend and consoli¬ 
date their position in socialist production and the socialist inter¬ 
relations in order to achieve the great ideal of realizing com - 
munism by eliminating the bourgeoisie and all exploitative 
classes and all class disparities. On the other hand, the bour¬ 
geoisie and all exploitative classes will never forget their past 
dominant position over the laboring people, the "good old days" 
when they could reap without work, and they will vainly attempt 
to free themselves from the restrictions imposed on them by 
the socialist interrelations and to restore the capitalist rela¬ 
tions. Lin Piao's adherence to Confucius' extremely reaction¬ 
ary political proposal to "restore fallen states, reinstate their 
sovereignties, and seek the counsel of cultivated persons in re¬ 
tirement" was a conspiracy to retrieve all fallen exploitative 
classes, pull down the laboring people as the new masters, and 
restore the capitalist interrelations. Therefore, the process of 
consolidation and development of the socialist interrelations is 
essentially a process of struggle between the proletariat and 
the bourgeoisie. 

Socialist Interrel ations Still 
Po ssess Class Overtones 

In class society, interpersonal relations are ultimately inter¬ 
class relations. How then are the interpersonal relations in so¬ 
cialist production manifested as interclass relations ? 

To better understand the class relations in socialist produc¬ 
tion, it is necessary to retrace briefly the class relations in 
semicolonial and semifeudal China. 



286 Fundamentals of Political Economy 


The economic substructure of old China gave rise to the follow¬ 
ing classes, namely, the proletariat, the peasantry, and the urban 
petty bourgeoisie. At that time, the status of these classes and 
the inter class relations were as follows: The landlords and the 
bureaucratic bourgeoisie who controlled the major means of 
production and the reactionary state machinery and colluded 
with imperialism occupied a dominant position in social produc¬ 
tion. They relentlessly exploited and oppressed the proletariat, 
the peasantry, and the urban petty bourgeoisie. The national 
bourgeoisie also possessed a large quantity of the means of 
production. On the one hand, they were connected in production 
with imperialism, the landlords, and the bureaucratic bourgeoi¬ 
sie in their exploitation of the proletariat and the laboring peo¬ 
ple. On the other hand, they were boycotted and hurt by the 
landlords and the bureaucratic bourgeoisie. The proletariat 
and the broad masses of poor peasants were in a helpless posi - 
tion in social production subject to triple oppression and exploi¬ 
tation from the imperialists, the feudal forces, and the bour¬ 
geoisie. 

"To overthrow the old social system and establish a new one 
is a great struggle and an immense change in the social system 
and the interpersonal relations." (3) When China entered the 
historical period of socialist revolution and the socialist trans¬ 
formation of agriculture, handicraft industry, and capitalist in¬ 
dustry and commerce was basically realized with socialist pub¬ 
lic ownership of the means of production as the only economic sub¬ 
structure, "the interclass relations in the whole country under¬ 
went changes." (4) The landlord and the bureaucratic bourgeoisie 
had already been overthrown and were in the position of being 
ruled and transformed through social production. The means 
of production belonging to the national bourgeoisie had already 
passed into the hands of the proletariat and the whole laboring 
people. Having lost their controlling position in enterprise, the 
national bourgeoisie had to accept education and transformation 
from the working class. The peasants (including individual 
handicraftsmen) had been transformed from individual produc¬ 
ers to collective laborers and, with the working class, became 



Interpersonal Relations with Socialist Principles 287 


masters of the socialist economy. The urban petty bourgeoisie 
had been assimilated into the socialist production relations in 
the socialist transformation. The working class had become 
the leading class in the country controlling the lifeblood of the 
socialist economy and occupying a leading position in the whole 
social production. The old classes of the semicolonial and 
semifeudal society still existed. But their interclass relations 
had undergone fundamental changes. 

Revisionists from Khrushchev and Brezhnev to Liu Shao-ch'i 
and Lin Piao and their associates publicized a platform stating 
that when the socialist public ownership system becomes the 
only economic substructure, all exploiting classes vanish. Conse¬ 
quently, the production relations, which include interpersonal 
relations, lose their class relation character, and the so-called 
interpersonal relations become those among ’’comrades, friends, 
and brothers.” This fallacy is totally against Marxism and is 
inconsistent with the reality of socialist society. 

In socialist society, although the exploiting class has lost its 
means of production, it still exists as a class. After the social¬ 
ist revolution of the ownership of the means of production is 
basically realized, the existence of classes will rest on the 
people’s economic relations prior to socialist reform and their 
political positions in the struggle between socialism and capi¬ 
talism. In addition, the existence of classes is related to capi¬ 
talist traditions and influences that still remain in socialist 
society, to the remaining disparities between the worker and 
the peasant, the urban and rural areas, and mental and physical 
labor, and to the bourgeois legal rights that reflect them. In 
fact, in addition to the continuing existence of the landlord and 
the bourgeoisie, new bourgeois elements will continue to emerge. 
From among the educated, bourgeois rightists may still emerge. 
Agents of the bourgeoisie may even appear inside the Commu¬ 
nist Party. Lenin once pointed out: "To completely eliminate 
classes, it is necessary not only to overthrow the exploiter, 
namely, the landlord and the capitalist, and to abolish their 
ownership system, but also to abolish any private ownership 
system of the means of production and eliminate disparities 



288 Fundamentals of Political Economy 


between the urban and rural areas and between physical and 
mental labor. This is a task that can only be realized after a 
long time.” (5) 

Although some people concede that there are still exploitative 
classes in socialist society, they refuse to admit that these 
classes survive in socialist production relations. They think 
that these classes exist only in that part of society which is di¬ 
vorced from socialist production relations. The fact is, a so¬ 
ciety which is divorced from certain production relations sim¬ 
ply does not exist. The exploitative classes do not live in a vac¬ 
uum, but in socialist production relations. In other words, they 
live in the economy of socialist state enterprises and in the col¬ 
lective economy. The only difference is that they are no longer 
in a dominant position of being the rulers but in that of being 
ruled. With the working class and the laboring people, they con¬ 
stitute the relations of the ruled and the ruling. To think that 
socialist production relations do not manifest relations in which 
the working class and the laboring people rule and transform 
the exploitative class will lead to the harmful conclusion that 
socialist production relations are independent of classes. Some 
people think that since we all earn our living through labor 
everyone is the same. Therefore, classes no longer exist. This 
erroneous concept is closely related to the theoretical negation 
of the class nature of socialist production relations. 

According to China’s conditions, there exist two exploitative 
classes and two laboring classes. The two exploitative classes 
are the remnants of the landlord and comprador class and the 
bourgeoisie and their affiliated intellectuals. The two laboring 
classes are the working class and the collective peasants and 
their affiliated laboring intellectuals. The interrelations in so¬ 
cialist production are mainly the relations among and within 
these four classes. The relations among these four classes are 
not of equal importance. In the whole historical stage of social¬ 
ism, the major contradictions are those between the proletariat 
and the bourgeoisie. The relations between the dominant prole¬ 
tariat and the dominated bourgeoisie are the basic class rela¬ 
tions in socialist society. Interpersonal relations in production 



Interpersonal Relations with Socialist Principles 289 


are inevitably governed, regulated, and influenced by these re¬ 
lations. Modern revisionists gloss over this class nature of 
interpersonal relations in production. They loudly say that 
interpersonal relations are all relations among ’'comrades, 
friends, and brothers." The Lin Piao clique also championed 
the slogans ’’while the two struggles turn all people into ene¬ 
mies, the two peaces turn all people into friends" and "within 
the four seas all are brothers." These are absurd. Whoever 
has been exposed to Marxism-Leninism knows that no relations 
among "comrades, friends, and brothers" are independent of 
classes in a class society. The hatred of the proletariat for the 
bourgeoisie originated in the exploitation and oppression of the 
proletariat by the bourgeoisie. "There can never be love with¬ 
out reasons; nor can there be hatred without reasons." (6) These 
two classes can never be "friends," not to mention "brothers." 

Is it conceivable that the proletariat and the laboring people will 
relinquish their rule and be "brothers" and "friends” of the 
bourgeoisie? The intent of the modern revisionists’ champion¬ 
ing of these fallacies is to defend the bourgeoisie, deceive the 
laboring people, and conceal their conspiracy to transform the 
socialist interrelations into capitalist interrelations in order 
to restore capitalism. (7) 

In socialist production, the two exploitative classes have as¬ 
sumed the status of being ruled. Under the conditions in China, 
these two classes are treated differently. The landlord and 
comprador classes are classified as enemies, and the national 
bourgeoisie is classified as of the people. These two exploita¬ 
tive classes are forced to accept transformation by different 
methods, but their relations with the worker and the peasant 
are still based on class antagonism. In socialist production, 
the laboring people, occupying a dominant position, are the 
masters in socialist production relations. Through continuous 
resolute and energetic struggle, the working class and the poor 
and lower-middle peasants will gradually transform the major¬ 
ity of these two exploitative classes into self-supporting labor¬ 
ers after a long period of labor. 

The working class and the toiling people had the same painful 



290 Fundamentals of Political Economy 


experience of exploitation and oppression in the old society. In 
socialist society, employing the means of production owned by 
the state or by the collective ownership of the toiling people, 
they all work, though in different roles, for their own class and 
society. They shoulder the common burden of reforming the 
exploiting class and share the same goal — to fight for the idea 
of communism. Therefore, their basic interests are the same. 
In socialist production, the relations among the worker, the 
peasant, and the laboring intellectuals and within each of the 
three groups constitute daily developing relations among revo¬ 
lutionary comrades based on identical basic interests. This is 
a basic point which determines the socialist nature of the rela¬ 
tions among the laboring people. 

But is there a "state in which there are no disparities" and 
no contradictions of any kind in the relations among the labor¬ 
ing people in socialist production? No! In the relations among 
the laboring people in production, in addition to the basic rela¬ 
tionship of being revolutionary comrades, there is also another 
aspect involving capitalist traditions and influences. These cap¬ 
italist traditions and influences are mainly reflected in the dis¬ 
parities between the worker and the peasant, the urban and 
rural areas, and mental and physical labor. Disparity is con¬ 
tradiction. This contradiction ultimately possesses the nature 
of class contradiction. At the same time, class struggles be¬ 
tween the proletariat and the bourgeoisie are inevitably re¬ 
flected among the laboring people, so that all issues of right 
and wrong, revolutionary and conservative, advanced and back¬ 
ward are stamped with a class mark. Therefore, contradictions 
among the people ultimately reflect the contradictions and strug¬ 
gles between the proletariat and the bourgeoisie, between the 
socialist road and the capitalist road. 

The Immensely Active Role of Interrelations 

Certain interrelations are based on a corresponding owner¬ 
ship system of the means of production. But the interrelations 
also play an immensely active role with respect to two other 


Interpersonal Relations with Socialist Principles 291 


aspects of production relations, namely, the form of the owner¬ 
ship system of the means of production and its corresponding 
distributive relations. 

The function of interrelations with respect to the two other 
aspects of production relations was very apparent in the his¬ 
torical period before the emergence of socialist society. For 
example, in order to establish and consolidate the capitalist 
ownership system and its distributive relations, the bourgeoisie 
had to establish interpersonal relations based on capitalist prin¬ 
ciples, namely, relations in which the bourgeoisie ruled the 
worker. As Marx solemnly pointed out in his criticism of the 
reactionary arguments that "exploitation is justified” and "op¬ 
pression is justified" which were championed by the defenders 
of the American slave system, "With this relationship of domi¬ 
nation and enslavement as a precondition, he [the capitalist] will 
force the wage laborer to produce both his own wages and also 
a wage for the supervisor to compensate the supervisor for his 
labor of dominating and supervising the laborer." (8) If the cap¬ 
italist and his agents did not wield absolute dominating power 
over the worker and if they could not force the worker to work 
according to the will of the capitalist, then capitalist exploitation 
would not be realized and the capitalist ownership system and 
the capitalist distributive relations in which "the laborer does 
not reap and the reaper does not labor” could never be consoli¬ 
dated and developed. Therefore, the bourgeoisie pays a great 
deal of attention to the establishment and consolidation of the 
subordinate status of the worker to capital in order to consoli¬ 
date and develop the capitalist ownership system and distribu¬ 
tive relations. 

In socialist society, the transformation of interrelations is 
also an important link in the transformation of production rela¬ 
tions. When this link is grasped and continually improved, it 
has great significance for consolidating and perfecting the so¬ 
cialist ownership system and the socialist distributive relations 
and consequently for promoting the development of social pro¬ 
ductive forces. 

The socialist construction in our country demonstrated that 



292 Fundamentals of Political Economy 


when the exploiting classes’ frantic attack on our socialist en¬ 
terprises had been repulsed, when our contradictions with our 
enemies had been correctly handled, when we had gradually es¬ 
tablished, according to socialist principles, the relations among 
the working people, between the leader and the masses, among 
the administrators, technicians, and workers, and between the 
laborers and the peasants, we were able to fully develop their 
activism and creativity and to orient the direction of our so¬ 
cialist enterprises. We saw our socialist revolution and social¬ 
ist production thrive, our system of socialization of the means 
of production strengthen, and our distributive relations inces¬ 
santly improve. When socialist interpersonal relations are con¬ 
tradicted or even sabotaged and when the remnants of capitalist 
interpersonal relations are allowed to develop, the position of 
the masses as masters will be threatened, the socialist activism 
of the masses will be suppressed and inhibited, and conse¬ 
quently, the socialist ownership system and distributive rela¬ 
tions will also be inhibited or may even degenerate. 

Interrelations gradually established on the basis of a public 
ownership system of the means of production and according to 
socialist principles are not confined to one enterprise. They 
involve all enterprises, all economic departments, the state 
ownership system, and the collective ownership system. They 
are manifested in exchange activities such as production coop¬ 
eration and exchanges of advanced experience and advanced 
technology. The development of such mutual exchanges in pro¬ 
duction, with leadership and planning among enterprises and 
among departments, embodies the superiority of the socialist 
public ownership system. They are conducive to the consolida¬ 
tion and development of the socialist ownership system, favor¬ 
able to fully mobilizing the forces of various economic depart¬ 
ments, and favorable to fully tapping economic potentials and 
promoting rapid development of the whole social productive 
force. 

The importance of the gradual perfection of interrelations 
with respect to consolidating production relations and develop¬ 
ing the social productive forces deserves our full attention. 



Interpersonal Relations with Socialist Principles 293 


After the establishment of the socialist public ownership sys¬ 
tem, the issue of interrelations must be continually and seri¬ 
ously resolved. 

Consolidate and Develop Socialist Interrelations 
in the Course of Stru ggle 

Devel op Re lations of Mut ual Support and Mutual 
Promotion between Industry and Agriculture 


From the angle of the whole of social production rather than 
that of a particular enterprise, interrelations are primarily 
manifested as relations between industry and agriculture. In¬ 
dustry and agriculture are the two basic material production 
sectors. The socialist state ownership system which is domi¬ 
nant in the industrial sector and the socialist collective owner¬ 
ship system of the laboring masses which is dominant in agri¬ 
culture are two forms of the socialist ownership system. From 
the standpoint of class relations, this economic structure is a 
relationship between the worker and the peasant. This class 
relationship is fundamentally different from the relationship 
between the laboring class and the exploitative class; it is the 
relation of a worker-peasant alliance in which basic interests 
are identical and leadership is in the hands of the working class. 

After the basic victory had been won in the ownership system 
of the means of production in China's socialist revolution, 
Chairman Mao pointed out: "Interrelations in production and 
exchange among various economic sectors are gradually being 
established according to socialist principles. More suitable 
forms are gradually being sought." (9) Interrelations among 
various economic sectors are primarily interrelations between 
industry and agriculture and, consequently, interrelations be¬ 
tween the worker and the peasant. The worker and the peasant 
are both masters of the means of production. The worker la¬ 
bors in enterprises under the state ownership system. The 
peasant labors in enterprises under the collective ownership 
system. The worker and the peasant must trade with each other 



294 Fundamentals of Political Economy 


so that social production can be carried on. 

In socialist society, the worker and the peasant are both in¬ 
dustrial forces in socialist construction. Their relationship as 
revolutionary comrades in production is a daily developing one 
of mutual support and mutual promotion based on the socialist 
public ownership system. In the production and exchange pro¬ 
cesses, the worker produces various agricultural machines, 
chemical fertilizers, insecticides, and industrial products for 
daily use in the countryside in support of the development of 
agricultural production and the improvement of the livelihood 
of the peasant. The peasant produces food grain, raw materials, 
and various agricultural and sideline products. Furthermore, 
in accordance with the growth rate of labor productivity in ag¬ 
riculture, he supplies an appropriate amount of labor power in 
support of the development of industrial production and satis¬ 
fies the industrial production and livelihood needs of the urban 
population. Under the leadership of the working class, mutual 
support and mutual promotion between the worker and the peas¬ 
ant are in line with the basic interests of these two classes and 
constitute a strong force for consolidating the worker-peasant 
alliance and promoting socialist economic development. 

In addition to direct contribution to the financial accumulation 
of the state through taxation, the exchange activities between the 
worker and the peasant under the two kinds of socialist owner¬ 
ship system are primarily in the form of commodity exchanges 
of industrial and agricultural products. Therefore, there may 
also arise some contradictions based on identical basic inter¬ 
ests on matters relating to quantity, variety, quality, and price 
of industrial and agricultural products, as well as the propor¬ 
tions of marketed and retained agricultural products and tax 
burdens on the peasant. 

The worker-peasant alliance in socialist society is the basis 
of proletarian dictatorship. Under the leadership of the working 
class, it is an important task to correctly handle contradictions 
between the worker and the peasant based on common interests 
and to develop the socialist relations of mutual support and mu¬ 
tual promotion between industry and agriculture. 



Interpersonal Relations with Socialist Principles 295 


The relations between industry and agriculture in socialist 
production are controlled, restricted, and affected by the major 
contradictions between the proletariat and the bourgeoisie. The 
working class (through the Communist Party) must lead the 
peasant to establish, consolidate, and develop a socialist collec¬ 
tive economy and gradually realize agricultural mechanization 
on the basis of agricultural collectivization so that socialist 
agriculture will advance along the socialist road, its relations 
to socialist state industry will be steadily strengthened, and the 
economic basis of proletarian dictatorship in agriculture will 
be consolidated. The bourgeoisie always tries hard to induce 
the peasant to take the capitalist road and attempts to under¬ 
mine the socialist collective economy by exploiting the serious 
spontaneous capitalist tendency of a few rich middle peasants. 
Therefore, the process for developing the worker-peasant re¬ 
lations in socialist production must of necessity be a process 
of struggle for the peasant between the proletariat and the bour¬ 
geoisie. Because of this, we would commit a gross blunder if, 
in handling the relations between agriculture and industry and 
the relations between the exchange of agricultural and indus¬ 
trial products, we saw only the relations between products but 
not the relations between the worker and the peasant or the re¬ 
lations between the proletariat and the bourgeoisie in their 
struggle to win over the peasant. 

Extend the ,r Lung-chiang Style,’** Develop 
Relations of Socialist Cooperation 

Another important aspect of interpersonal relations in socialist 
production is the relations among enterprises, among sectors, and 
among regions. It is mainly manifested in relations of socialist 
cooperation among these enterprises, sectors, and regions. 

Marx said: "Many people are systematically engaged in coopera¬ 
tive labor in the production process or in different, but related, pro- 


*Lung-chiang is a model brigade somewhere in Fukien. The 
story of its battle with floods by collective efforts was made a 
theme by Chiang Ch’ing in her model revolutionary opera en¬ 
titled "Song of Lung-chiang." — Editor. 




296 Fundamentals of Political Economy 


ductionprocesses. This form of labor is called cooperation." ( 10 ) 
This cooperation has different social characters and different 
ranges of activity under different production relations. 

The private ownership of the means of production by the cap¬ 
italist confines cooperation in capitalist production to one en¬ 
terprise or one monopoly capital group. From the viewpoint of 
the whole capitalist society, systematic cooperation among var¬ 
ious production sectors and various enterprises divided by the 
private ownership system is impossible to establish. Even cer¬ 
tain cooperation relations established through contracts are 
extremely unstable and are often interrupted. 

Socialist cooperation based on a public ownership system of 
the means of production can be developed not only within one 
enterprise; it can also be conducted in a planned and organized 
manner over the whole society among different enterprises, 
sectors, and regions. "When one plant participates, a hundred 
plants cooperate. When each plant makes one, a hundred plants 
make a line.” Socialist cooperation creates a new productive 
force. It is favorable to the development of one speciality and 
many abilities in enterprises, further contributing to increasing 
labor productivity. It is conducive to concentrating manpower, 
material resources, and finances to complete production and 
construction projects which one enterprise, one sector, or one 
region could not complete alone. It is favorable to concentrating 
strength for a short period to overcome weak links in the de-- 
velopment of the national economy, thus promoting rapid devel¬ 
opment of the whole national economy. 

The development of socialist cooperation is an important 
form for continually improving the interrelations among enter¬ 
prises, among sectors, and among regions. There are no basic 
conflicts of interest among the constituent parts of the socialist 
economy. Socialist cooperation requires having the implemen¬ 
tation of proletarian politics in command, the breaking down of 
the boundaries among enterprises, among sectors, and among 
regions, concern for the whole situation, growth through diffi¬ 
culties, and consideration for other people. It also requires a 
strict adherence to supply contracts, coordination between the 
cooperative assignment and the completion of plans, and adoption 



Interpersonal Relations with Socialist Principles 297 


of effective measures to guarantee the completion of assign¬ 
ments according to variety, specifications, quality, quantity, 
and schedule. These cooperative relations are fundamentally 
opposed to the capitalist interrelations based on mutual decep¬ 
tion and competition and on capitalist departmentalism. Depart¬ 
mentalism is a conceptual reflection of the private ownership 
system and will exist in socialist society for a long time to 
come in varying degrees. ’’Paying no attention to the overall 
situation and being indifferent to other sectors, other regions, 
and other people is the characteristic of this departmental¬ 
ism.” (11) The following erroneous concepts and actions still 
exist in cooperative relations: Preferring to play a major role 
rather than a minor one; reckoning economic accounts at the 
expense of political accounts; paying attention only to partial 
interests and not to overall interests, even to the extent of ben¬ 
efiting oneself at the expense of others; disregarding the state’s 
unified economic plan by cutting corners or, so to speak, enter¬ 
ing through the back door; and so forth. The appearance of these 
problems in the process of cooperation is a reflection of the 
struggles between the two classes, the two roads, and the two 
lines. The development process of socialist cooperation is a 
process of struggle with bourgeois influences, especially bour¬ 
geois departmentalism. This is essentially a reflection of the 
struggle between the socialist public ownership system and the 
capitalist private ownership system. 

The unfolding of socialist cooperation requires an extension 
of the communist work style, a firm adherence to socialist 
principles, a voluntary observance of state fiscal policies, and 
the resolute implementation of various proletarian economic 
policies. Therefore, in the cooperative relations between the 
state enterprises and the collective enterprises, among state 
enterprises, among collective enterprises, among sectors, and 
among regions, the principle of equivalent exchange must be 
observed, and fair pricing enforced. Mutual support in material 
resources in the cooperative process must be in accordance 
with the state plan and have the approval of the leading organ. 

It is not permissible to indiscriminately engage in ’’mutual 



298 Fundamentals of Political Economy 


exchanges” in the name of "cooperation/’ disrupting the social¬ 
ist plan. 

With the victorious development of socialist cooperation, the 
laboring people will continually strengthen the proletarian view¬ 
point of seeing the whole situation and will continually criticize 
and repudiate bourgeois departmentalism. In the process of 
struggle, the laboring people's relations of being revolutionary 
comrades will steadily develop. 

The ”An sh an Steel C onstitution” Is a Compass for 
Handling Interrelations within Enterprises 


The socialist enterprises (including industry, agriculture, 
communications and transportation, commerce, and all produc¬ 
tion and circulation departments) are the basic unit of human 
material production and exchange. Interpersonal relations in 
production exist in enterprises in large numbers. Interrelations 
among the laboring people are chiefly of two kinds: The rela¬ 
tions between the leadership and the masses and the relations 
between the management personnel and technicians (mental la¬ 
borers) on the one hand and the worker and the peasant (physi¬ 
cal laborers) on the other. The correct handling of these two 
aspects of these relations, that is, to "create a political situa¬ 
tion in which there is centralism as well as democracy, disci¬ 
pline as well as freedom, unified determination as well as indi¬ 
vidual happiness and vitality” (12), is an important issue in con¬ 
solidating and developing socialist production relations and in 
improving socialist enterprise management. In enterprises, 
there are also the relations between the worker-peasant labor¬ 
ing people and the two exploitative classes. These relations 
have been analyzed above. 

The socialist enterprise is an enterprise of the working class 
and the laboring people. The working class and the laboring 
people are responsible for leading the enterprise through their 
representatives. This gives rise to an issue of the relations be¬ 
tween the leadership and the masses. Although the leadership 
personnel and the masses in the enterprise hold different jobs 



Interpersonal Relations with Socialist Principles 299 


in revolution, they are "comrades-in-arms in the same trench" 
who share the heavy duty of properly managing the enterprise 
and who labor for a common revolutionary goal. Workers on 
the Shanghai wharfs put it nicely, "Though jobs are different in 
revolution, our thinking must be in unison." These words pointed 
out the key to improving the relations between the leadership 
and the masses in the socialist enterprises. 

In enterprises, it is also necessary to have some people in 
charge of various management and technical jobs. This gives 
rise to the issue of the relations between the management per¬ 
sonnel and technicians and the worker-peasant laboring masses. 
There are two categories of China’s management personnel and 
technicians. One consists of management personnel and techni¬ 
cians left over from the old society. With the exception of a 
few reactionaries who are hostile to socialist society, the great 
majority of them love their country, love our People's Repub¬ 
lic, and are willing to serve the people and the socialist state. 
Another category consists of those intellectuals trained by the 
proletariat through struggle and through the development of so¬ 
cialist revolution and socialist construction. Though some of 
them may have been poisoned by the revisionist line in educa¬ 
tion and their world outlook must still be continually transformed, 
the great majority are willing to integrate with the worker- 
peasant masses and make contributions to the socialist and 
communist enterprise. Therefore, in socialist society, the re¬ 
lations between the leadership and the masses, between the 
management personnel and technicians and the worker-peasant 
masses are also daily developing relations of being revolution¬ 
ary comrades and sharing common interests. But contradictions 
do exist between them; it is not an "undiversified situation." 

The division of labor in socialist enterprises between the 
leadership and the masses, between the management personnel 
and technicians and the direct producers still reflects the divi¬ 
sion of labor of the old society and is a manifestation of the still 
existing disparity between mental and physical labor. Under 
these conditions, if the leadership personnel, management per¬ 
sonnel, and technicians who are responsible for organizing and 



300 Fundamentals of Political Economy 


guiding production do not regularly participate in collective 
production labor, they become divorced from the laboring 
masses and subject to the corrosion of bourgeois thinking and 
develop contradictions with the laboring masses. These contra¬ 
dictions often reflect to varying degrees the contradictions be¬ 
tween the proletariat and the bourgeoisie. For example, some 
leadership cadres, management personnel, and technicians who 
have been poisoned by such Confucian and Mencian thinking as 
"those who use their brains rule, those who use their muscles 
are ruled" do not treat the masses and themselves with the cor¬ 
rect attitude. They think that "the leadership is brighter" and 
do not treat the worker-peasant masses as masters of the en¬ 
terprise. They resort to restrictive measures and convert the 
revolutionary comrade relationship into relations of domination 
and subordination. These are all manifestations of the lingering 
poison of the revisionist line and reflect to varying degrees the 
contradictions and struggles between the bourgeoisie and the 
proletariat. At the same time, though there are no basic con¬ 
flicts of interest among the masses, some people may also not 
handle interpersonal relations according to socialist principles 
because of the influence of bourgeois thinking and the relaxation 
of socialist education by the leadership. These contradictions 
among the people in the enterprise embody to varying degrees 
the nature of class contradictions. Although these contradictions 
exist, from the standpoint of all the interrelations among the 
people in the enterprise, this interrelation is still socialist in 
nature as long as the proletariat assumes the leading position. 

If these contradictions were allowed to develop and the bour¬ 
geois versions were allowed to assume the guiding position, 
then socialist interrelations would degenerate into capitalist 
interrelations. 

The " Anshan Steel Constitution," personally announced by 
Chairman Mao, and his series of instructions such as '’Manage¬ 
ment Is Also Socialist Education" (13) constitute the compass for 
the correct handling of interpersonal relations in socialist enter¬ 
prises. The basic spirit of the "Anshan Steel Constitution" is to 
firmly practice putting proletarian politics in command, 



Interpersonal Relations with Socialist Principles 301 


strengthen Party leadership, launch mass movements in a big 
way, implement "two participations, one reform, and three com¬ 
binations" (namely, insist on having cadres participate in labor 
and masses participate in management, revise irrational regu¬ 
lations and systems, and implement the three combinations 
among the worker, the cadre, and the technician), and make 
technical innovations and technical revolution in a big way. 
Firm adherence to putting proletarian politics in command and 
stronger Party leadership are basic principles for the correct 
handling of interrelations. Under the guidance of these princi¬ 
ples, the serious and thorough implementation of the "two par¬ 
ticipations, one reform, and three combinations" will enable the 
relationship of being revolutionary comrades to develop steadily 
between the leadership and the masses and between the manage¬ 
ment personnel and technicians and the worker-peasant laboring 
masses. 

The participation of cadres in production labor is a big event 
of fundamental importance under the socialist system. It is also 
an important aspect in properly handling socialist interrelations. 
Chairman Mao pointed out: "We must insist on the system of 
cadres participating in collective production labor. The cadres 
of our Party and our state are ordinary laborers and not mas¬ 
ters riding on the shoulders of the people. Through participat¬ 
ing in collective production labor, the cadre keeps the broadest, 
most regular, and closest contact with the laboring people. This 
is a big event of fundamental importance under the socialist 
system. It is instrumental in overcoming bureaucratism and 
preventing revisionism and dogmatism." (14) This is an infalli¬ 
ble truth explained by Chairman Mao after summing up the ex¬ 
perience and lessons of the international communist movement. 
Those cadres who can voluntarily and regularly participate in 
collective production labor are generally more conscious in 
their resistance to bourgeois thinking and possess more self- 
knowledge. They show concern and affection for the masses, 
humbly listen to the call of the masses, are receptive to criti¬ 
cism and supervision from the masses, and can firmly adhere 
to the socialist direction of the enterprise. They are more 



302 Fundamentals of Political Economy 


familiar with production conditions and seldom give blind com¬ 
mands. There is one song among women textile workers which 
describes the transformation of a leadership cadre of a factory 
after her participation in collective production labor: ’In the 
past, she never visited the workshop; now she comes to the 
side of the machine to ask for advice. In the past, things were 
delayed; now they are solved immediately. In the past, only big 
reports were made; now she says what she thinks in the work¬ 
shop. In the past, she was called a petty bureaucrat; now she 
is treated like a sister.” The fact is such leadership personnel, 
management personnel, and technicians are welcomed by the 
masses. Even if there are contradictions between them, they 
can be correctly resolved in good time. 

The participation of the masses in management is a require¬ 
ment of their position as masters in socialist production. Only 
by insisting on having the masses participate in management 
can the position of the laboring masses as masters in the enter¬ 
prises be defended and consolidated. The exploitative class al¬ 
ways opposes having the masses participate in management. 
When the persons in power taking the capitalist road controlled 
the leadership of the enterprises, they relied on a few bourgeois 
experts. They resorted to restrictive measures in dealing with 
the worker-peasant masses. This effectively expropriated the 
right of the masses to manage the enterprise. Under these con¬ 
ditions, the relations between the capitalist-roaders and the 
worker-peasant masses was nothing but capitalist domination 
and subordination in disguise. When people with a firm commit¬ 
ment to bourgeois thinking control the leadership of the enter¬ 
prises, it is also impossible for the masses really to participate 
in enterprise management. In effect, it is up to a few cadres to 
do what they want. Therefore, in these enterprises, the social¬ 
ist interrelations between the leadership and the masses are 
not perfect. In the process of China's socialist revolution and 
socialist construction, especially in the process of the Great 
Proletarian Cultural Revolution and the Campaign to Criticize 
Lin Piao and Rectify the Style of Work, the power stolen by the 
capitalist-roaders and bad people has been taken back, the 



Interpersonal Relations with Socialist Principles 303 


bourgeoisie and revisionists have been criticized and repudi¬ 
ated, and the leadership of the enterprises has been gradually 
and effectively put into the hands of the Marxists and the labor¬ 
ing people. A new situation of having the masses participate in 
management has subsequently arisen. 

Participation of the masses in management primarily refers 
to the participation of the direct producers, the worker-peasant 
masses, in management. The masses who participate in enter¬ 
prise management must not only direct production, technical 
know-how, and accounting, but more importantly, they have to 
help and supervise the cadres in thoroughly implementing the 
Party line and general and specific policies. In the Great Pro¬ 
letarian Cultural Revolution, the representatives of the worker- 
peasant masses directly participated in the enterprises’ revo¬ 
lutionary committees. They were not divorced from production, 
but they still performed their supervisory work. This is a new 
development in the masses' participation in management. This 
is extremely important for achieving close relations between 
the cadres and the masses, promoting firm adherence to the 
mass line by the enterprise leadership, serving the people, and 
perfecting and developing socialist interrelations. 

The implementation of the "three combinations" of the masses, 
the cadres, and the technicians in the production struggle and 
scientific experiments in order to solve major technical prob¬ 
lems of production is not only conducive to stimulating techni¬ 
cal innovation on a mass basis, but also to accustoming the in¬ 
tellectuals to labor and the worker-peasant masses to system¬ 
atic knowledge, narrowing the essential distinctions between 
mental and physical labor, and further perfecting and develop¬ 
ing socialist interrelations. 

The reform of irrational regulations and systems in enter¬ 
prise management is another aspect of continually adjusting 
and transforming socialist interrelations. Any social production 
requires certain regulations and systems. But the type of regu¬ 
lations and systems instituted is determined by the production 
relations in society. Lenin sharply pointed this out with respect 
to enterprise management in capitalist society: "What concerns 



304 Fundamentals of Political Economy 


the capitalist is how to plunder through management and how 
to manage through plundering.” ( 15) The regulations and sys¬ 
tems of capitalist enterprise aim at one thing only, that is, how 
to better restrict the freedom of the worker and how to extract 
more surplus value from the worker. The numerous regulations 
and endless rules in capitalist enterprise are all designed to 
defend, and are restricted by, capitalist production relations. 
Under socialism, "systems have to be favorable to the 
masses.” ( 16) This is the most fundamental difference between 
socialist regulations and systems and capitalist regulations and 
systems. Systems having to be favorable to the masses means 
that such systems have to be favorable to the masses 1 role as 
masters, to the improvement and development of interpersonal 
relations in the enterprise, to the exercise of socialist activism 
by the masses, and to the development of the Three Revolution¬ 
ary Movements of class struggle, production struggle, and sci¬ 
entific experiment. Regulations and systems which are favor¬ 
able to the masses will certainly be favorable to the develop¬ 
ment of production as they mobilize the activism of the masses. 
Under the influence of the revisionist line of Liu Shao-ch'i and 
Lin Piao, the regulations and systems of some enterprises of¬ 
ten restricted the masses. The worker's criticism was that 
"there are too many systems and regulations and they are cre¬ 
ated either for the purpose of punishment or coercion." Under 
good leadership, the masses should be mobilized to revise, 
phase by phase, the systems and regulations which are irra¬ 
tional, restrictive, detrimental to production, creating dishar¬ 
mony, and alienating workers. Meanwhile, on the basis of the 
experience acquired in practice, a new set of healthy and ra¬ 
tional systems and regulations which correspond to the need 
for socialist interrelations and the development of the produc¬ 
tive forces should be established. 

The Immense Influence of the Superstructure 
o n the Formation of Interre lations 

People’s status and the nature of their interrelations in pro¬ 
duction are determined by the system of ownership of the means 



Interpersonal Relations with Socialist Principles 305 


of production. But they also form and develop in reaction to 
the superstructure. Without some influence from the super¬ 
structure, people’s status in production and their interrelations 
cannot be smoothly formed and will not have a chance to con¬ 
solidate and develop. The ruling class of any society always 
uses the power of the superstructure to defend by all means the 
ownership system that has been established and to consolidate 
and develop the people's status, their interrelations in produc¬ 
tion, and the corresponding distributive relations. This is a 
general law. 

Take the capitalist society for example. The bourgeoisie of 
any country uses the power of the superstructure to establish 
and extend the capital-labor relationship by force to dominate 
labor. Marx pointed out that to establish and extend the domi¬ 
nation of capital over labor, the newly emerging bourgeoisie 
"needs to exercise the power of the state." (17) From the end 
of the fifteenth century to the first half of the nineteenth cen¬ 
tury, the well-known "enclosure movement" (18) in England re¬ 
sorted to violent measures to evict a large number of poor peas¬ 
ants who then drifted into the urban areas destitute and "free as 
a bird" only to become objects of domination by capital. How¬ 
ever, the peasants who drifted into the urban areas often pre¬ 
ferred to become tramps rather than be subject to the arbitrary 
rule of capital over labor. To force the destitute peasants into 
the factory, the British bourgeoisie passed laws to punish 
tramps in order to "force them to become accustomed to the 
necessary discipline of wage labor by means of flogging, brand¬ 
ing, and torture." (19 ) Look how cruel were the means used by 
the bourgeoisie to establish and develop interrelations in which 
capital dominated labor. 

The relationship of capital dominating labor was established 
by violence. It could only be crushed by force. In socialist 
countries under proletarian dictatorship, this relation was in 
fact crushed. 

Because socialist production relations can only be established un¬ 
der proletarian dictatorship, the effect of the socialist superstruc¬ 
ture on the socialist economic substructure is especially apparent. 



306 Fundamentals of Political Economy 


Socialist interrelations are determined by the socialist public 
ownership system. They are also formed and developed under 
the immense pressure of the socialist superstructure. If we 
thought that socialist interrelations would automatically form 
and develop with the establishment of the socialist public owner¬ 
ship system, we would be seriously mistaken. 

In socialist interrelations, the relationship of the working 
class and other laboring people vis-a-vis the bourgeoisie and 
other exploiting classes is one between the ruler and the ruled 
and between the transformer and the transformed. Because of 
their class nature, the exploiters will not voluntarily accept the 
position of being ruled and transformed. The fact that the pro¬ 
letariat is capable of coercing some of them to accept socialist 
transformation is due to the powerful state machinery it con¬ 
trols. Without this precondition, the rule over, and the trans¬ 
formation of, the bourgeoisie are impossible. 

Among the laboring people, if the relationship of being revo¬ 
lutionary comrades is to develop steadily according to socialist 
principles, it is necessary to rely on the role of the socialist 
superstructure to educate and transform ourselves in order to 
free ourselves from the influence of reactionaries at home and 
abroad. Chairman Mao pointed out: "The people's state defends 
the people. Only with the people’s state is it possible to educate 
and transform ourselves through democratic means throughout 
the whole country and on a total scale in order to free ourselves 
from the influence of internal and external reactionaries." (20) 
Only by insisting on waging socialist revolution in the super¬ 
structure, using the proletarian ideology to gradually overcome 
the bourgeois ideology, and continually expelling the capitalist 
traditions and influences in interrelations can the relation 
among the laboring people of being revolutionary comrades 
steadily develop, and only thus is the way cleared for the for¬ 
mation and development of the interrelations of socialist pro¬ 
duction. 

To sum up, the process of formation and development of so¬ 
cialist interrelations is a long process of political and ideolog¬ 
ical struggle between the two classes. To defend and develop 



Interpersonal Relations with Socialist Principles 307 


socialist interrelations, the proletariat must firmly adhere to 
the basic Party line for the whole historical stage of socialism. 
After a basic victory has been won in the socialist revolution 
of the system of ownership of the means of production, it must 
continue to penetratingly carry on socialist revolution in the po¬ 
litical and ideological lines, liquidate bourgeois ideology and 
foster proletarian ideology, fight selfishness, and criticize re¬ 
visionism. This is a fundamental issue in the consolidation and 
improvement of socialist interrelations. If we thought that after 
the establishment of the socialist public ownership system the 
exploitative class vanishes and if we departed from the central 
issue of the proletariat's opposition to the bourgeoisie in ex¬ 
plaining socialist interrelations, then we would be in opposition 
to the basic Party line and would fall into the trap of the class 
extinction argument. If we did not insist on carrying on social¬ 
ist revolution in the superstructure and allowed the free over¬ 
flow of bourgeois ideology, then socialist interrelations would 
degenerate into capitalist interrelations, and the socialist pub¬ 
lic ownership system would disintegrate. The restoration of 
capitalism in the Soviet Union teaches us by way of negative ex¬ 
ample to understand the scientific truth of Marxism in this re¬ 
gard. 

Major Study References 


Chairman Mao, "On the Correct Handling of Contradictions 
among the People." 

Chairman Mao, "A Talk at the National Propaganda Work 
Conference of the Chinese Communist Party." 

Review Problems 


1. Why do we say that the interpersonal relations in socialist 
production are ultimately class relations ? 

2. What is the significance of the interpersonal relations in 
production established according to socialist principles in con¬ 
solidating, perfecting, and developing the socialist public owner- 




308 Fundamentals of Political Economy 


ship system and distributive relations and in promoting the de¬ 
velopment of the productive forces ? 

3. Where is the immensely active role of the superstructure 
in the consolidation, perfection, and continual development of 
the interpersonal relations in socialist production manifested ? 

Notes 


1) "Three Sources and Components of Marxism," Selected 
Work s of Lenin , Vol. 2, Jen-min ch'u-pan-she, 1972, p. 444. 

2) Engels, "Karl Marx 'A Critique of Political Economy,'" 
Selected Works of Marx and Engels , Vol. 2, Jen-min ch’u-pan- 
she, p. 123. 

3) "A Talk at the National Propaganda Work Conference of 
the Chinese Communist Party," Selecte d Rea ding s fr om the 
Works of Mao Tse-tung, (Type A), Jen-min ch'u-pan-she, 

1965, p. 365. 

4) Ibid., p. 365. 

5) "The Great Innovation," Sele cted Works of Lenin, Vol. 4, 
Jen-min ch'u-pan-she, 1972, p. 11. 

6) "Talks at the Yenan Forum on Literature and Art," Se- 
lected W ork s of Mao Tse-tung , Vol. 3, Jen-min ch’u-pan-she, 
1968, p. 827. 

7) Many contemporary Soviet revisionist writers reveal the 
nature of the "comrades, friends, and brothers" relationship 
championed by Soviet revisionism. In a play entitled "The Out¬ 
sider" by a Soviet writer, I Te-wu-lieh-tzu-chi, the major char¬ 
acter Ch'ieh-shih-k'o-fu, a Soviet revisionist Party member 
and an engineer of a certain enterprise, went to the No. 26 
Foundry of the Nieh-lieh-shih Company to transform its "back¬ 
ward appearance." He arrogantly roared to the workers: "We 
are the leaders. Our hands do not do anything. We work with 
words and our brains." He ordered the foremen to keep a close 
watch on the workers to "keep an eye on them and get at their 
throats." Whoever disobeys an order should be punished by 
"deducting half of his bonus." "Hit them with rubles." In the 
Soviet Union, the laboring people are subject to cruel exploitation 




Interpersonal Relations with Socialist Principles 309 


and oppression from such new bureaucratic monopolist bour¬ 
geoisie. This is the nature of the ’’comrades, friends, and 
brothers” relationship championed by Soviet revisionism. 

8) Marx, Capital, Vol. 3, Jen-min ch’u-pan-she, 1966, 
p. 440. 

9) ”On the Correct Handling of Contradictions among the 
People,” Selected Readi ngs from the Works of M ao Tse-tung, 
(Type A), Jen-min ch’u-pan-she, 1965, p. 337. 

10) Marx, C apital , Vol. 1, Complete Works of Marx and 
Engels , Vol. 23, p. 362. 

11) "The Rectification of the Party’s Style of Work,” 
Sel ected Works of Mao Ts e-tung, Vol. 3, Jen-min ch'u-pan-she 
1968, p.782. 

12) Quotations from Chairman Mao. Taken from Hung-ch'i 
[Red Flag], 1972, No. 10. 

13) Quoted from Jen- min jih-pao [People’s Daily], August 
14, 1972. 

14) Quoted from ”On Khrushchev's Fake Communism and Its 
Lesson for World History," Jen-min ch'u-pan-she, 1964, pp. 54- 
55. 

15) "How to Organize Competition ?” Sele cted Works of 
Lenin, Vol. 3, Jen-min ch’u-pan-she, 1972, p. 395. 

16) Quotations from Chairman Mao. Taken from J en-min 
jih-pao [People’s Daily], May 31, 1972. 

17) Marx, Capital , Vol. 1, Complete Wor ks of Mar x and 
Engels , Vol. 23, p. 806. 

18) The "enclosure movement” was one of the important 
forms of primitive capitalist accumulation. The "enclosure 
movement" in England from the end of the fifteenth century was 
the most typical. At the end of the fifteenth century, the emer¬ 
gence of England's wool-spinning industry led to a continuous 
rise in wool prices. Sheep farming became a very profitable 
business. The landed aristocracy and the bourgeoisie of Eng¬ 
land colluded to forcibly evict the peasant from the land and 
then enclosed it to raise sheep. Houses within the enclosure 
were totally destroyed. The peasants were rendered homeless 
and reduced to being beggars and tramps. In the eighteenth 



310 Fundamentals of Political Economy 


century, the British bourgeois government, by means of a se¬ 
ries of ’’enclosure acts” concocted by the Parliament, sup¬ 
ported the violent plundering of the peasant by the bourgeoisie. 
In this process, the peasant continually resisted and started 
many rebellions against the enclosure movement. 

19) Marx, Capital , Vol. 1, Complet e Works of Marx and 
Engels , Vol. 23, p. 805. 

20) "On the People's Democratic Dictatorship," Selected 
Works of Mao Tse-tung, Vol. 4, Jen-min ch'u-pan-she, 1968, 
p. 1365. 



15 

Develop Socialist Production with Greater, 
Faster, and Better Results at Lower Costs 


The Nature and Goal of Socialist Production 
and the Means of Achieving This Goal* 


The elimination of the private ownership system of the 
means of production and the establishment of the socialist 
public ownership system has led to a fundamental change 
in the social relations of people in the production, exchange, 
and distribution processes. First of all, the nature of so¬ 
cial production has changed. The goal of social production 
and the means to attain the goal of production have also changed. 
Thus, the development of socialist production follows different 
laws from those of capitalist production. Only by correctly un¬ 
derstanding and making use of these laws can socialist produc¬ 
tion be developed with greater, faster, and better results at 
lower costs. 

Socialist Pu blic Ownership Has Fundamentally 
Changed the Nature of So ci al Productio n 

The Direct Social P roduct under Socialism Possesse s, 
in Varying Degrees, the Characteristics of the Commodity 

Production of material wealth is a necessary condition for 
the survival and development of human society. Under different 


*To k'uai hao sheng ti fa-chan she-hui-chu-i sheng-ch’an — 
she-hui-chu-i sheng-ch'an ti hsing-chih mu-ti ho ta-tao mu-ti 
ti shou-tuan. 


311 



312 Fundamentals of Political Economy 


social and economic systems, however, social products possess 
different characteristics. 

Under the private ownership system of the means of produc¬ 
tion, production is the individual’s private affair. The product 
belongs to him. Therefore, production is always directly mani¬ 
fested as private production. The product is also directly mani¬ 
fested as a private product. When this product is not produced 
for the consumption of the producer, but is instead intended for 
exchange, then it becomes a commodity. This private product 
also possesses a social nature. But, this social nature is con¬ 
cealed by the private ownership system and cannot be directly 
manifested. Only through exchanges, when the produced com¬ 
modity has been proven to meet the needs of society, can the 
social nature of the product be affirmed. In capitalist society, 
all products are private products and also commodities. Capi¬ 
talist production is the most developed form of private com¬ 
modity production. 

In socialist society, after the socialist transformation of the 
system of ownership of the means of production has been basi¬ 
cally completed, with the exception of a small amount of family 
sidelines operated by members of the rural collective economy, 
the whole of social production has been established on the basis 
of a system of public ownership of the means of production. Seen 
as a whole, the production of the state economy and the collec¬ 
tive economy based on the socialist public ownership system is 
organized according to plans throughout the whole country. It 
is conducted to directly meet the needs of society, namely, to 
directly meet the needs of the proletariat and the whole laboring 
people. This kind of production has lost the nature of private 
production. Looked at from its basic aspect, it has become direct 
social production. Labor products are also socially useful from 
the start, and therefore they are no longer private products but 
are direct social products. Needless to say, the labor that is 
engaged in direct social production to create direct social prod¬ 
uct is no longer private labor but is direct social labor. Engels 
once observed, ’’Once society possesses the means of produc¬ 
tion and uses them in direct social forms for production, then 



Socialist Production according to the General Line 313 


everybody's labor, whatever its specific uses may be, becomes 
direct social labor right away." (1) 

In the historical development process of human society, di¬ 
rect social production once existed in the primitive commune. 
At that time, "the commune members combined to form a so¬ 
ciety directly for production." (2) They labored together and 
distributed products to the members according to custom and 
need. This was a kind of direct social production based on a 
system of public ownership by the clan commune. It appeared 
when the level of productive forces was low and social division 
of labor was underdeveloped. It was a primitive public owner¬ 
ship economy without commodity production and exchange. 

Socialist direct social production is large-scale social pro¬ 
duction based on division of labor and cooperation among mil¬ 
lions, tens of millions, hundreds of millions of people. In the 
fairly long historical period of socialist society, the socialist 
system of public ownership still consists of two forms. Social¬ 
ist direct social production is conducted on the basis of these 
two forms of socialist public ownership. Products are owned 
respectively by the socialist state and various enterprises un¬ 
der the collective ownership system. This determines that di¬ 
rect social production under socialism cannot eliminate com¬ 
modity production and exchange. To attain normal economic 
relations between these two types of socialist public ownership 
and between industry and agriculture and to facilitate the con¬ 
solidation of the worker-peasant alliance, it is necessary to re¬ 
tain and suitably develop commodity production and exchange 
for a fairly long period of time. This cannot be changed at will. 
Lenin pointed out, "Commodity exchange is a yardstick to mea¬ 
sure the normality of the interrelations between industry and 
agriculture." (3) 

Socialist commodities primarily reflect the relation between 
the economy under the state ownership system and the economy 
under the collective ownership system and the relations among 
different collective economies. In the state economy, products 
are transferred from one state enterprise to another state en¬ 
terprise. For example, the rolled steel of a state iron and steel 



314 Fundamentals of Political Economy 


mill is transferred to a state plant which builds spinning and 
weaving machines. Or the weaving machine built by a state 
spinning and weaving machine plant is transferred to a state 
spinning and weaving mill. The product is still owned by the 
socialist state, and there has been no transfer of ownership 
rights. Furthermore, product transfers among state enter¬ 
prises are usually allocated and delivered according to state 
plans rather than taking place through the market. Therefore, 
this type of product transfer is basically not commodity ex¬ 
change. It already possesses many characteristics of the com¬ 
munist distribution of products. 

But the socialist economy is an integrated whole; the com¬ 
modity relations between the two forms of socialist public 
ownership system cannot but be reflected in the exchange rela¬ 
tions within the state ownership system. Meanwhile, with the 
present level of productivity, material conditions demand that 
the state enterprises maintain their relative independence of 
operation and management and that they trade with each other 
according to the principle of exchanges of equivalent value. 
Therefore, although the commodities exchanged among state 
enterprises are basically no longer commodities, they still pos¬ 
sess certain commodity characteristics and must be expressed 
in terms of price and purchased with money. When distributed 
for the members' consumption, food grains produced by the 
rural collective economy must also be expressed in terms of 
price and money. This inevitably brands the product as a com¬ 
modity. Therefore, socialist products are direct social products 
on the one hand, but they also possess commodity characteris¬ 
tics in varying degrees. Socialist commodities differ from other 
historical commodities. They possess three characteristics: 

(1) They are based on a public ownership system of the means 
of production and are primarily an expression of the exchange 
relations between the worker and the peasant. (2) In contrast to 
the unorganized and unplanned capitalist commodity production, 
a great majority of socialist commodities are produced in a 
planned manner under the guidance of state planning. (3) Com¬ 
pared with the capitalist society, the scope of commodities is 



Socialist Production according to the General Line 315 


greatly reduced in the socialist society. Labor power is no 
longer a commodity. Land, mineral resources, and other nat¬ 
ural resources are no longer commodities either. The means 
of production circulating within the socialist state ownership 
system have also undergone significant changes and have lost 
certain properties of commodities. 

Direct social products with varying degrees of commodity 
characteristics are an expression of the special duality of so¬ 
cialist products. They reflect the characteristics of socialist 
production relations in the transition period from capitalism to 
socialism. Direct social products are the dominant aspect of 
this duality. This is the aspect common to socialist and com¬ 
munist products. Although socialist commodities are fundamen¬ 
tally different from all historical commodities based on a pri¬ 
vate ownership system, the commodity-money relationship has, 
after all, been a tradition of the old economy for thousands of 
years. Socialist products with varying degrees of commodity 
characteristics show that compared with communist direct so¬ 
cial products, socialist direct social products are still imma¬ 
ture and carry with them traditions and influences of the old so¬ 
ciety. Communist direct social products will be completely free 
of these traditions and influences of the old society, namely, 
commodity characteristics. At that time, labor expended on the 
production of products will no longer be expressed as the value 
of these products. 

That socialist direct social products still possess varying de¬ 
grees of commodity characteristics is determined by the level 
of productivity in the socialist period and by the two forms of 
socialist public ownership system and other material economic 
conditions. Since socialist products still possess varying de¬ 
grees of commodity characteristics, categories related to com¬ 
modities, such as use value and exchange value, concrete and 
abstract labor, money, price, and so forth, will certainly exist. 
To negate the commodity aspects of socialist direct social 
products and to attempt to abolish commodity production pre¬ 
maturely is obviously erroneous. Ch’en Po-ta, a renegade and 
Trotskyite, clamored for the abolition of commodity production 



316 Fundamentals of Political Economy 


and exchange during the period of the rapid development of 
China's rural people's commune movement in a vain attempt 
to lead revolution and construction astray. Chairman Mao saw 
through this conspiracy in time and engaged him in a resolute 
struggle. In the resolutions of the Sixth Plenum of the Eighth 
Central Committee of the Chinese Communist Party personally 
convened and chaired by Chairman Mao, this was pointed out: 
"This way of thinking which attempts to prematurely abolish 
commodity production and exchange, prematurely negate the 
constructive role of commodities, value, money, and price is 
detrimental to developing socialist construction and is there¬ 
fore incorrect." (4) Socialist commodity production must not 
only be retained, but must also be developed to consolidate the 
economic link between China's industry and agriculture and be¬ 
tween urban and rural areas in order to promote the develop¬ 
ment of socialist construction. 

On the other hand, however, we must also see that although 
socialist commodity production based on a public ownership 
system is fundamentally different from private commodity pro¬ 
duction, the fact that products are produced as commodities 
cannot but still be a reflection of the traditions and influences 
of the old society. Such categories as commodity, value, money, 
and price are things that can be used by the bourgeoisie and its 
agents in the Communist Party. The proletariat wants to use 
commodity production to promote socialist construction, while 
the bourgeoisie wants to use commodity production to restore 
capitalism. In the three years of natural calamities from 1960 
to 1962, the Liu Shao-ch'i clique unscrupulously advocated an 
extension of the privately retained plot, an uncontrolled devel¬ 
opment of the free market, and a system of "internal responsi¬ 
bility for profit and loss" in the state economy. Their intention 
was to use the principle of capitalist commodity production to 
"transform" the socialist economy and restore the capitalist 
system in China. Chairman Mao was the first to discover this 
evil intention of the Liu Shao-ch’i clique. He led the whole Party 
to solemnly criticize and repudiate the revisionist line carried 
out by the Liu Shao-ch'i clique so that China's commodity pro¬ 
duction could develop progressively along the socialist path. 



Socialist Production according to the General Line 317 


Th e Socialist P roduc t ion Process Is a Unity of the 
Labor Process and the Value-Creation Process 


The duality of socialist products is reflected in the duality of 
the production process for socialist products. As production 
for direct social products, it is a labor process which creates 
in a planned manner various use values to satisfy the needs of 
the proletariat and the whole laboring people. As commodity 
production, the labor of the producer not only creates various 
concrete use values but also exchange values. The socialist 
production process is a unity of this labor process and the 
value-creation process. The characteristics of socialist pro¬ 
duction can only be determined with reference to the character¬ 
istics of the socialist labor process and value-creation process. 

Abstracting from various specific social conditions and ex¬ 
amining it from the viewpoint of the functions performed by the 
various primary factors of production, the labor process is 
merely a process through which the people who possess labor 
power embody it in materials, creating expected products — it 
is a purposeful activity for creating use value, it is a process 
of material transformation between man and Nature. However, 
all production processes are carried on under certain social 
conditions. Therefore, labor processes reflect the relations 
not only between man and Nature, but also among men. Looking 
at it from this viewpoint, there is a fundamental difference be¬ 
tween the labor process under socialism and the labor process 
under capitalism. 

The labor process under the capitalist system is a process 
in which the capitalist consumes labor power. Its characteris¬ 
tics are: The worker labors under the supervision of the capi¬ 
talist, and labor products belong to the capitalist, that is, labor 
under the capitalist system is hired labor, slave labor, and hard 
labor performed by the exploited. 

Under the socialist system, for the first time the laboring 
people become masters of the state and the enterprise. Conse¬ 
quently, there appear in the socialist labor process new char¬ 
acteristics without historical precedent. Lenin said: ''Every 
factory from which the capitalist has been expelled, or at least 



318 Fundamentals of Political Economy 


in which the capitalist is controlled by genuine worker super¬ 
vision, and every village from which the landlord exploiter has 
been expelled and his land expropriated only then becomes the 
domain of the laborer. Here, the laborer can express his tal¬ 
ent, keep his back straight, be proud of himself, and feel that 
he too is a human being. He has been toiling for others for 
millennia, performing hard labor for exploiters. Now for the 
first time, he can work for himself, usingall the newest achieve¬ 
ments of technology and culture.” (5) The socialist labor pro¬ 
cess is a process in which the worker, the peasant, and other 
laborers create material wealth for the laboring class itself. 

Its characteristics are: The laboring people, as their own mas¬ 
ters, are engaged in organized and planned labor in socialist 
production. The whole labor product is distributed by the labor¬ 
ing class itself. Therefore, socialist labor is planned labor not 
subject to exploitation and is voluntary labor of the laboring 
people for the creation of social wealth. 

However, the socialist society is a society with classes. In 
addition to the laboring class, there is the exploitative class. 
The former exploiters must also labor in the socialist society 
in which consumption depends on labor. Supervised labor is 
imposed on the landlords, the rich peasants, and members of 
other antagonistic classes. The bourgeois elements are allowed 
to reform through labor in the enterprise. The treatment given 
to these two exploitative classes is different because the nature 
of their contradictions with the laboring people is different. But 
as exploiters, their labor necessarily carries with it varying 
degrees of coercion. Naturally, this coercion imposed on the 
exploiter by the laborer is fundamentally different from the co¬ 
ercion imposed by the exploiter on the laborer. In the past, the 
exploiter coerced the laborer to labor in order to exploit the 
surplus value of the laborer. Now the laborer coerces the ex¬ 
ploiter to labor in order to transform him into a new person. 
Therefore, the socialist labor process is also a process for re¬ 
forming the exploiter. This is to say, the socialist labor pro¬ 
cess does not merely involve material conversion between man 
and Nature but also contains social and class reform. 



Socialist Production according to the General Line 319 


As far as the laboring people are concerned, the socialist 
labor process still carries with it traditions and influences of 
the old society. This is because the old social division of labor 
left behind by the capitalist society can only gradually be elim¬ 
inated in the whole historical stage of socialism. The position 
of the laboring people in socialist production cannot but be re¬ 
stricted and affected by the old social division of labor: Some 
people are primarily engaged in mental labor, while some peo¬ 
ple are primarily engaged in physical labor; some people oc¬ 
cupy a position of leadership and management in production, 
while others occupy the position of being direct producers. The 
opposition between mental and physical labor is one of the most 
important sources of inequality in the capitalist society. The 
socialist society has overcome this opposition. But an essential 
difference still exists. This essential difference can also de¬ 
velop into opposition under certain conditions. The Soviet Union, 
under the rule of the Brezhnev renegade clique, is ruled pre¬ 
cisely by the bureaucratic monopoly bourgeoisie, namely, a 
handful of "people using their brains" including Party bureau¬ 
crats, intellectual aristocrats, and technical bureaucrats. There¬ 
fore, the process by which the laboring people come to be the 
masters of society and enterprise in socialist society is a long 
process of struggle. It is not only a process of struggle with 
the bourgeoisie and its agents in the Party, but also a process 
in which favorable conditions are created gradually to eliminate 
the essential difference between mental and physical labor. In 
the socialist period, although all the laboring people are free 
from exploitation, labor has still not become the primary com¬ 
mitment in the lives of all the laborers. This remaining tradi¬ 
tion and influence of the old society concerning the nature of la¬ 
bor can only finally be swept away in the highest stage of com - 
munism. 

These characteristics of the socialist labor process are also 
reflected in the value-creation process. 

Every commodity embodies the duality of labor: Concrete la¬ 
bor creates use values, while abstract labor creates exchange 
values.*Value reflects certain social relations. Under different 



320 Fundamentals of Political Economy 


social and economic conditions, the social relations reflected 
by value are different and so is the formation of value. 

Under the conditions of a simple commodity economy, the 
peasant or handicraftsman produces using his own means of 
production. Labor products and their values naturally belong 
to him. After the commodity is sold, he gets back the value of 
the means of production expended in the production process. 
But he also realizes the new value created by his own labor. 
This new value compensates for the value of the means of live¬ 
lihood required for the reproduction of labor power. This way, 
the production process can continue on the scale of simple re¬ 
production. Marx called the value-formation process under 
simple commodity production the simple value-formation pro¬ 
cess. 

Under capitalism, the purpose of commodity production by 
the capitalist is to exploit the surplus value of the worker. 
Through the production and sale of commodities, the capitalist 
gets back the value of the means of production expended in the 
production process. At the same time, the new value created by 
the labor of the worker not only compensates for the variable 
capital used by the capitalist to purchase labor power, but also 
creates a surplus. This surplus is the surplus value extracted 
by the capitalist. Marx called this value-formation process in 
capitalist production the value-augmenting process. This cate¬ 
gory of the value-augmenting process reflects the exploitative 
relations between capital and hired labor. 

In the socialist production process, the labor of the laborer, 
as concrete labor, transfers and preserves the value of the 
means of production expended in the production process. As 
abstract labor, it creates new value. Should this new value cre¬ 
ated by the producer belong totally to the producer himself? 

No. To realize socialist expanded reproduction and to satisfy 
the various common needs of the laborers, society must con¬ 
trol various social funds. These social funds can only come 
from the new value created by the producer. If the newly cre¬ 
ated value belongs entirely to the producer himself, then the 
socialist economy will not be able to carry on expanded repro- 



Socialist Production according to the General Line 321 


duction. It can only maintain simple reproduction. The com¬ 
mon needs of the laborers cannot be satisfied either. There¬ 
fore, in the socialist society, the new value created by the pro¬ 
ducer must be divided into two parts. One part is at the dis¬ 
posal of the producer himself. It constitutes the labor remuner¬ 
ation fund for the producer and is used to satisfy personal live¬ 
lihood needs of the producer. Another part is at the disposal 
of society. It constitutes various social funds, namely, social 
net income, and is used to further develop socialist production 
and satisfy the various common needs of the whole laboring 
people. Consequently, as a producer, a part of the new value 
created by him has to be deducted for the disposal of society 
as social funds. As a member of the laboring people, he is fully 
entitled to enjoy, with the other laboring people, the welfare 
brought about by the social funds. Therefore, the distribution 
of the new value created by the producer into the labor remu¬ 
neration fund and the social fund under the socialist system is 
fundamentally different from the distribution of the new value 
created by the worker into wages and surplus value under the 
capitalist system. Under the capitalist system, labor is a com¬ 
modity and is subject to the law of value. Wage means the price 
of labor power. No matter how large the newly created value 
is, the part that belongs to the worker himself is only equal to 
the value of those means of livelihood necessary for the repro¬ 
duction of labor power. The rest, namely, the surplus value, is 
not only possessed by the capitalist, but is used as a means to 
increase the exploitation of the worker. Under the socialist 
system, labor power is no longer a commodity. The laborer is 
no longer exploited. All of the value created by the producer is 
at the service of the laboring class. The distribution of the la¬ 
bor remuneration fund of the producer and the social fund is 
regulated by an overall consideration of common and individual 
interests and the long-term and short-term interests of the la¬ 
boring people. 

Consequently, the value-formation process under the socialist 
system is different not only from the simple value-formation 
process under simple commodity production but also from the 



322 Fundamentals of Political Economy 


value-augmenting process in capitalist production. It is a spe¬ 
cial value-creation process reflecting socialist production re¬ 
lations. The socialist production process is a unity of this la¬ 
bor process and the value-creation process. 

The B asic E conomic Law of Socialism Embod ies the 
Mos t Esse ntial Relat i ons of Socialist Production 

T he Purpose of Socialist Production Is to Sati sfy th e 
Ever -In creasing N eeds of the State an d the Peop le 

The socialist production process is a unity of the labor pro¬ 
cess and the value-creation process. What then is the dominant 
aspect of the contradiction in this duality ? 

One dominant aspect of the contradiction in social production 
embodies the objective purpose of this social production and 
reflects the most essential relations of this social production. 

It is independent of the people's will; it is ultimately deter¬ 
mined by the nature of the ownership of the means of produc¬ 
tion. Social production has to serve the interests of the class 
who owns the means of production. 

Under the capitalist ownership system of the means of pro¬ 
duction, the labor process also provides use values. But this 
is not the purpose of capitalist production. The capitalist oper¬ 
ates factories in order to exploit the worker and obtain profit 
through the value-augmenting process. Value augmentation is 
the dominant aspect of capitalist production. It embodies the 
most essential relations in capitalist production. Marx pointed 
out, "The purpose of capital accumulation is not the satisfaction 
of needs but the production of profit." (6) "Capital and its accu¬ 
mulation are manifested as the beginning and the end of produc¬ 
tion and the motive and purpose of production.” (7) 

The socialist public ownership system of the means of pro¬ 
duction makes the laboring people become the masters of pro¬ 
duction. Social production must serve the needs of the whole 
laboring people. Therefore, a labor process that creates use 
values in a planned manner to satisfy the needs of the laboring 





Socialist Production according to the General Line 323 


people is the dominant aspect of socialist production. It em¬ 
bodies the objective purpose of socialist production and the 
most essential relations of socialist production. The value- 
creation process is subordinate to the socialist labor process 
which creates use values. In the socialist production process, 
it is entirely necessary to compute labor expenditure, profit, 
and loss. But, what and how much to produce cannot be affected 
by the size of the value of production and the size of profit. In¬ 
stead, they should be based on the needs of the whole laboring 
people. Whatever is urgently needed by the laboring people 
should be produced in greater quantity with the greatest possi¬ 
ble effort, even at the risk of temporary losses. On the other 
hand, anything that is not urgently required by the laboring peo¬ 
ple, even if its value of production and profits are high, cannot 
be indiscriminately produced in great quantity. The reason why 
it is necessary for the socialist enterprise to compute labor ex¬ 
penditure, profit, and loss is in order to reduce costs so that 
the enterprise can be compensated in value and can also provide 
an ever-increasing social fund for developing production at a 
high speed and increasing the supply of social product. Ulti¬ 
mately, the subordination of the value-creation process to the 
labor process is for the purpose of creating an ever-increasing 
quantity of social wealth to satisfy the needs of the whole labor¬ 
ing people. Before the victory of the October Revolution, Lenin 
pointed out that in socialist society, "the wealth created by com¬ 
mon labor is for the benefit of the whole laboring people and not 
for that of a handful of rich people." (8) 

The purpose of socialist production is to satisfy the needs of 
the whole laboring people. But the long-term interests of the 
laboring people and their interests as a whole have to be re¬ 
flected and expressed through the state under proletarian dic¬ 
tatorship. Therefore, the purpose of socialist production can 
also be described as the satisfaction of the ever-increasing 
needs of the socialist state and its people. These needs are 
multifaceted. To develop their morals, intelligence, and phy¬ 
sique, there is a need for the proletariat and the laboring peo¬ 
ple continually to raise the level of their material and cultural 



324 Fundamentals of Political Economy 


life. Since classes, class contradictions, class struggle, the 
danger of capitalist restoration, and the threat of sabotage and 
aggression from imperialism and social imperialism still exist 
in the socialist society, there is a need for the socialist country 
to consolidate proletarian dictatorship and strengthen national 
defense. And since the proletariat can once and for all liberate 
itself only by liberating the whole human race, there is a need 
for the socialist country to discharge its obligation to interna¬ 
tionalism and support the revolutionary struggles of the peoples 
of the world. Therefore, the purpose of socialist production is 
to raise the level of the material and cultural life of the prole¬ 
tariat and the laboring people, consolidate proletarian dictator¬ 
ship, strengthen national defense, and support the revolutionary 
struggles of the peoples of the world. Ultimately, it must serve 
to eliminate classes and realize communism. 

The great strategic policy formulated by Chairman Mao to "be 
prepared for war, be prepared for natural disasters, and do every¬ 
thing for the people" fully embodies the objective purpose of social¬ 
ist production and points out a correct direction for the de velopment 
of China’s socialist production and the whole national economy. Un¬ 
der the guidance of Chairman Mao’s proletarian revolutionary line 
and his general and specific policies, China’s socialist production 
develops vigorously. The level of the people’s material and cul¬ 
tural life is increasing all the time. Proletarian dictatorship is 
continually being strengthened and consolidated. Within our ca¬ 
pacity, we have given aid to the world's revolutionary enter¬ 
prises. 

In the Soviet Union under the rule of the Brezhnev renegade 
clique, the law of surplus value governs social production. The 
purpose of production is to pursue profit and to guarantee that 
the largest possible amount of surplus value is extracted from 
the laboring people of the Soviet Union by the bureaucratic mo¬ 
nopoly bourgeoisie. But in order to deceive the masses, the 
Soviet revisionist renegade clique morbidly clings to pseudo- 
communism. They try hard to distort the purpose of socialist 
production and say something like: "The highest purpose is to 
raise people's welfare." "Everybody will have enough food, 



Socialist Production according to the General Line 325 


clothing, shoes, housing, and books. We call this communism. ,f 
This renegade clique deceives the masses with the sweet talk 
of bourgeois welfare. The intent is to make them forget class 
struggle and revolution in order to facilitate this renegade 
clique’s restoration of capitalism. In the Soviet Union, the only 
people who eat well, dress well, and are properly sheltered are the 
bureaucratic monopoly bourgeoisie and the revisionist intellec¬ 
tual aristocracy under their wing. The broad laboring people 
have again fallen into an abyss of exploitation and suffering. 

Grasp Rev o lut ion, P romote Production 

The dominant aspect of the socialist production process, 
namely, the most essential thing that determines socialist pro¬ 
duction, is the satisfaction of the ever-increasing needs of the 
state and the people. To realize this purpose, social production 
must be developed in order to increase total social output. Marx 
and Engels pointed out in the Communist Manifesto that after 
the proletariat has overthrown bourgeois rule, it will use its 
political rule to expropriate the capitalist, "[it] will put all 
tools of production into the hands of the state, namely, the pro¬ 
letariat who has organized itself into a ruling class, and in¬ 
crease total productivity as fast as possible." (9) When China 
was faced with the transition from the new democratic revolu¬ 
tion to the socialist revolution and the shift of emphasis of 
Party work from the rural areas to the urban areas, Chairman 
Mao also earnestly taught us to pay attention to the rehabilitation 
and development of production, saying, "From the day when we 
take over the administration of the city, our eyes have to focus 
on the recovery and development of this city's production enter¬ 
prise." (10) 

There are generally two ways of developing social production 
and increasing total social output. One is to increase the labor 
force in production as population increases. In general, this 
may increase the total social output, but it cannot increase per 
capita product. Another way is to increase labor productivity. 
This not only increases total social output, but also per capita 



326 Fundamentals of Political Economy 


product. From the long-range viewpoint, the major way to de¬ 
velop socialist production can only be by increasing labor pro¬ 
ductivity. When he discussed the significance of increasing la¬ 
bor productivity, Lenin said, "Only by increasing production 
and increasing labor productivity can Soviet Russia obtain vic¬ 
tory.” (11) He also said, "Labor productivity is the most im¬ 
portant thing that ultimately guarantees the victory of a new 
social system (12) 

How then can labor productivity be increased to develop so¬ 
cialist production ? 

Marxism holds that productive forces develop under the con¬ 
straint and impetus of production relations. In class society, 
production is always carried on under certain class relations. 
Even though changes and developments in social production al¬ 
ways start from changes and advances in productive forces, big 
advances in productive forces always occur after big transfor¬ 
mations in production relations. In the beginning of capitalist 
development, it is always necessary to have a bourgeois revolu¬ 
tion to make capitalist production relations become the major 
economic basis of society before big advances in the productive 
forces occur. In socialist society, it is also only after the es¬ 
tablishment of proletarian dictatorship, the penetrating unfold¬ 
ing of socialist revolution, socialist nationalization, and agri¬ 
cultural collectivization, and the establishment of socialist pro¬ 
duction relations as the only economic basis of society that big 
advances in the productive forces can occur. When the socialist 
transformation of the ownership system of the means of produc¬ 
tion is basically completed, revolution is not yet finished. In 
production relations, only by consolidating socialist production 
relations corresponding to the development of productive forces 
and opportunely adjusting or transforming that part of produc¬ 
tion relations which conflicts with the development of produc¬ 
tive forces can socialist production be developed continuously 
and rapidly. 

Advances in science and technology and innovations in pro¬ 
duction tools play a big role in developing production and rais¬ 
ing labor productivity. But, ’'the determining factor is the 



Socialist Production according to the General Line 327 


people, not things.” (13) Science and technology are discovered 
by people, and production tools are created by people. ”Of all 
things in the world, people are the most valuable. Under the 
leadership of the Communist Party, any miracle of the human 
world can be created if we have people.” (14) The broad masses 
of China put it well: ”Fear not the lack of machines; fear only 
the lack of ambition. With one red heart and two hands, every¬ 
thing can be produced through self-reliance.” The socialist ac¬ 
tivism of the broad masses must be mobilized by the political 
and ideological work of the Party. Only by lifting the key link 
of political and ideological work, by widely and deeply mobiliz¬ 
ing the masses to discuss major national issues, by criticizing 
and repudiating revisionism, the Confucian and Mencian men¬ 
talities and all world outlooks of the exploitative class, and by 
fundamentally raising the consciousness of the broad masses 
concerning class struggle and line struggle can socialist pro¬ 
duction be continuously and rapidly developed. 

Therefore, in socialist society, the ultimate way to develop 
production and increase labor productivity is to insist on con¬ 
tinuing revolution under proletarian dictatorship. After the pro¬ 
letariat seizes political power, only by exercising the influence 
of the socialist superstructure to unfold penetratingly socialist 
revolution on the political, economic, and ideological battle- 
fronts under the guidance of the Party’s correct line and with 
the aid of government power under proletarian dictatorship can 
the sabotage and obstruction of the bourgeoisie and capitalist 
influence be swept away and destroyed. Only then can socialist 
production relations be consolidated and improved and can all 
constructive factors be mobilized to promote the development 
of socialist production at a high speed. The policy ”grasp rev¬ 
olution and promote production” formulated by Chairman Mao 
correctly reflects the requirement of the objective law govern¬ 
ing the motion of the basic contradiction of socialist society. 
This policy teaches us that only by commanding all economic 
work with proletarian politics and propelling production with 
revolution can China's socialist production be guaranteed to ad¬ 
vance with big strides in the correct direction. 



328 Fundamentals of Political Economy 


The revisionist clique of Brezhnev, Liu Shao-ch'i, and Lin 
Piao always uses the reactionary "productivity-first theory" 
to oppose continuous revolution under proletarian dictatorship. 
This renegade clique always deals with production as production 
and opposes revolution under the pretext of developing produc¬ 
tion. It even attributes the development of production wholly to 
the development of science and technology and the improvement 
of production tools to a reliance on bourgeois experts. The re¬ 
visionist line pushed by the clique of Liu Shao-ch’i and Lin 
Piao has been overthrown, but the lingering poison of this 
’’productivity-first theory" has not been completely swept away 
and has to be criticized and repudiated repeatedly. 

The Basic Economic Law of Socialism D etermines All 
Major Aspects of Develo pment of the Socialist Economy 

The objective purpose of social production and the means to 
realize it express the basic direction of development of social 
production and embody the requirement of the basic economic 
law of society. Different social and economic systems have 
different purposes of production and different means to achieve 
it. Consequently, there are different basic economic laws. The 
purpose of socialist production is to satisfy the ever-increasing 
needs of the state and the people. The means to attain this pur¬ 
pose is by propelling the development of technology and produc¬ 
tion through revolution. Therefore, to sum up briefly, the ma¬ 
jor characteristics and requirements of the basic economic law 
of socialism are: to continually increase the level of technology, 
develop socialist production with greater, faster, and better re¬ 
sults at lower costs, satisfy the ever-increasing needs of the 
state and the people, and create the material conditions for the 
ultimate elimination of classes and the realization of commu¬ 
nism under the command of proletarian politics. 

The basic economic law of socialism determines all major 
aspects of development of the socialist economy and the basic 
content of socialist production, exchange, distribution, and con¬ 
sumption. 



Socialist Production according to the General Line 329 


As far as production is concerned, what and how much to pro¬ 
duce and how production should be arranged in the socialist so¬ 
ciety must follow what this law demands. In setting up plans, 
the socialist country specifies the variety, quantity, and ar¬ 
rangement of production according to the requirements of the 
basic economic law of socialism in order to make the develop¬ 
ment of socialist production conducive to consolidating prole¬ 
tarian dictatorship, strengthening national defense, supporting 
the revolutionary struggles of the peoples of the world, and con¬ 
tinually increasing the level of material and cultural life of the 
laboring people. 

Socialist exchange must also obey the requirements of the 
basic economic law of socialism. In determining the proportion 
of export and import, the proportion of military and civilian 
use, the proportion of supply to the rural and the urban areas, 
and the prices of products, the first thing that the socialist 
country considers is not how much money can be obtained or 
how much the profit is. The first thing it considers is whether 
the arrangement is favorable to increasing the level of material 
and cultural life of the laboring people, consolidating the worker- 
peasant alliance, strengthening national defense, and supporting 
the revolutionary struggles of the peoples of the world. 

The basic economic law of socialism also determines social¬ 
ist distribution and consumption. In the distribution of national 
income and personal consumption goods, the socialist state 
must obey the requirements of the basic economic law of so¬ 
cialism. For example, the determination of the proportion be¬ 
tween accumulation and consumption and the level of wages 
must take into account both long-term and immediate interests 
and the collective and individual interests of the laboring peo¬ 
ple. Similarly, socialist consumption, whether it be group or 
individual consumption, must be favorable to continually im¬ 
proving the material and cultural life of the proletariat and the 
laboring people, revolutionizing people’s thought, fostering new 
socialist customs, consolidating proletarian dictatorship, and 
accelerating socialist construction. 

In summary, the basic economic law of socialism embodies 



328 Fundamentals of Political Economy 


The revisionist clique of Brezhnev, Liu Shao-ch f i, and Lin 
Piao always uses the reactionary ’’productivity-first theory" 
to oppose continuous revolution under proletarian dictatorship. 
This renegade clique always deals with production as production 
and opposes revolution under the pretext of developing produc¬ 
tion. It even attributes the development of production wholly to 
the development of science and technology and the improvement 
of production tools to a reliance on bourgeois experts. The re¬ 
visionist line pushed by the clique of Liu Shao-ch'i and Lin 
Piao has been overthrown, but the lingering poison of this 
"productivity-first theory" has not been completely swept away 
and has to be criticized and repudiated repeatedly. 

The Basic Ec on omic Law of Socialism Determines All 
Major Aspects of Development of the Socialist Economy 


The objective purpose of social production and the means to 
realize it express the basic direction of development of social 
production and embody the requirement of the basic economic 
law of society. Different social and economic systems have 
different purposes of production and different means to achieve 
it. Consequently, there are different basic economic laws. The 
purpose of socialist production is to satisfy the ever-increasing 
needs of the state and the people. The means to attain this pur¬ 
pose is by propelling the development of technology and produc¬ 
tion through revolution. Therefore, to sum up briefly, the ma¬ 
jor characteristics and requirements of the basic economic law 
of socialism are: to continually increase the level of technology, 
develop socialist production with greater, faster, and better re¬ 
sults at lower costs, satisfy the ever-increasing needs of the 
state and the people, and create the material conditions for the 
ultimate elimination of classes and the realization of commu¬ 
nism under the command of proletarian politics. 

The basic economic law of socialism determines all major 
aspects of development of the socialist economy and the basic 
content of socialist production, exchange, distribution, and con¬ 
sumption. 



Socialist Production according to the General Line 329 


As far as production is concerned, what and how much to pro¬ 
duce and how production should be arranged in the socialist so¬ 
ciety must follow what this law demands. In setting up plans, 
the socialist country specifies the variety, quantity, and ar¬ 
rangement of production according to the requirements of the 
basic economic law of socialism in order to make the develop¬ 
ment of socialist production conducive to consolidating prole¬ 
tarian dictatorship, strengthening national defense, supporting 
the revolutionary struggles of the peoples of the world, and con¬ 
tinually increasing the level of material and cultural life of the 
laboring people. 

Socialist exchange must also obey the requirements of the 
basic economic law of socialism. In determining the proportion 
of export and import, the proportion of military and civilian 
use, the proportion of supply to the rural and the urban areas, 
and the prices of products, the first thing that the socialist 
country considers is not how much money can be obtained or 
how much the profit is. The first thing it considers is whether 
the arrangement is favorable to increasing the level of material 
and cultural life of the laboring people, consolidating the worker- 
peasant alliance, strengthening national defense, and supporting 
the revolutionary struggles of the peoples of the world. 

The basic economic law of socialism also determines social¬ 
ist distribution and consumption. In the distribution of national 
income and personal consumption goods, the socialist state 
must obey the requirements of the basic economic law of so¬ 
cialism. For example, the determination of the proportion be¬ 
tween accumulation and consumption and the level of wages 
must take into account both long-term and immediate interests 
and the collective and individual interests of the laboring peo¬ 
ple. Similarly, socialist consumption, whether it be group or 
individual consumption, must be favorable to continually im¬ 
proving the material and cultural life of the proletariat and the 
laboring people, revolutionizing people's thought, fostering new 
socialist customs, consolidating proletarian dictatorship, and 
accelerating socialist construction. 

In summary, the basic economic law of socialism embodies 



330 Fundamentals of Political Economy 


the most essential links between socialist production, exchange, 
distribution, and consumption. It determines the ultimate direc¬ 
tion of development of the socialist economy. The correct un¬ 
derstanding and use of the basic economic law of socialism can 
strengthen our self-awareness, overcome blind impulses in our 
work, and help us to advance with big strides in the correct so¬ 
cialist direction. 

The Rapid Develo pm ent of Socialist Production Is a 
Unity of Objective Possibility and Subjective Initiative 


The Socialist System Can Make Production Develop at 
Speeds Which Would Be Impossible for the Ol d Society 

The purpose of socialist production is to satisfy the ever- 
increasing needs of the state and the people. The degree of sat¬ 
isfaction of these needs is closely related to the speed with 
which production develops. The consolidation of national de¬ 
fense in the socialist country, the development of cultural, edu¬ 
cational, and health facilities in socialist society, the improve¬ 
ment of the material and cultural life of the people, and aid to 
the revolutionary enterprises of the world’s peoples all require 
rapid development of socialist production to create the material 
preconditions. Also, because imperialist rule is always over¬ 
thrown at its weakest link, the first countries in which socialist 
revolution is successful are likely to have a relatively weak in¬ 
dustrial basis. This all the more increases the objective neces¬ 
sity for rapidly developing socialist production. 

Under the socialist system, it is not only necessary, but pos¬ 
sible, to have rapid development of production. Chairman Mao 
pointed out: ’’When we say socialist production relations are 
more suitable for developing the productive forces than the old 
production relations, we are referring to the conditions in which 
the productive forces are permitted to develop at speeds which 
would be impossible in the old society, and consequently, the 
ever-increasing needs of the people can be satisfied by continu¬ 
ally expanding production.” (15) Therefore, a rapid development 



Socialist Production according to the General Line 331 


of socialist production is not a mere hope, but is based on an 
objective possibility of socialist production relations. It is a 
manifestation of the superiority of the socialist system. 

How can socialist production relations propel production and 
the whole national economy to develop at high speed ? 

First of all, the socialist system provides wide-ranging pos¬ 
sibilities for the exercise of the production activism and cre¬ 
ativity of the laboring people. Under the socialist system, the 
proletariat and the laboring people are no longer sellers of la¬ 
bor power. They have freed themselves from enslavement and 
exploitation and have become masters of the new society. They 
no longer perform hard labor for any exploiter but instead work 
for the interests of their own class. Labor has become a glori¬ 
ous and great career. This change in the position of the labor¬ 
ing people in social production makes them begin to really con¬ 
cern themselves with production as masters and exercise their 
inexhaustible talents. People with the ability to labor are the 
most important factor in production. That socialist production 
relations can propel production to develop at a high speed is 
primarily because the activism and creative talents of the la¬ 
boring masses which have been suppressed under the capitalist 
system are now liberated. 

Second, the socialist system eliminates the immense waste 
of manpower, material resources, and finances that is inevita¬ 
ble under competition and the chaotic conditions of capitalism. 
The socialist country can fully and rationally utilize labor and 
material resources by using a unified plan to direct the devel¬ 
opment of the whole national economy, using facilities and nat¬ 
ural resources in a planned and rational manner, and training 
and allocating labor power in a planned and rational manner. 

Third, the socialist revolution has eliminated the system of 
man exploiting man and has made it possible to use that part of 
the wealth which was formerly used by a handful of exploitative 
classes on parasitic consumption to improve the livelihood of 
the laboring people and to develop socialist production. 

Fourth, the socialist system has cleared a wide road for a 
rapid development of science and technology. Under the capitalist 



332 Fundamentals of Political Economy 


system, new technology is used only when it can bring more 
profit to the capitalist. New technology that has already been 
adopted is monopolized by the capitalist as "trade secrets.” 
This inevitably restricts the development of new technology. 
Under the socialist system, the adoption of new technology is 
for the sake of saving labor expenditure in production. It is 
also for the sake of reducing the labor intensity of the laboring 
people and improving labor conditions. Therefore, the develop¬ 
ment of science and technology becomes a conscious demand of 
the laboring people. Furthermore, the advanced experience in 
technical innovations of any one socialist enterprise is the com¬ 
mon property of the laboring people. It can be quickly adopted 
by other enterprises after summing up and extension. 

Fifth, the socialist system has eliminated the contradictions 
between production increase and the relative decrease of mass 
purchasing power peculiar to capitalism. This is because with 
the development of socialist production, the consumption level 
of the proletariat and the laboring people steadily increases and 
the scale of national construction steadily expands. Economic 
crises due to overproduction never occur. This clears away 
artificial obstacles to the rapid development of production. 

Although the objective possibility exists in the socialist sys¬ 
tem for a rapid development of production, there also exist 
some factors which undermine and inhibit the rapid development 
of production. Examples are the sabotage activities of the bour¬ 
geoisie and its agents, the obstruction from the established in¬ 
fluence of the petty bourgeoisie, the ravages brought about by 
natural calamities, and so forth. In addition to the objective ex¬ 
istence of these social and natural factors, there are also sub¬ 
jective factors related to the proletariat itself. On their way to 
unfolding socialist revolution and socialist construction, the pro¬ 
letariat will certainly be faced with new situations and new prob¬ 
lems. In order to understand the objective law of the new situa¬ 
tion and to find correct methods to solve the new problem, a pe¬ 
riod of time is needed to accumulate experience. Socialist con¬ 
struction is not expected to proceed smoothly; it can only ad¬ 
vance in a wavelike manner. To turn the objective possibility 



Socialist Production according to the General Line 333 


into a reality of rapid development, our subjective efforts are 
required. Here a Marxist line which correctly reflects the ob¬ 
jective law plays a determining role. Once the line is correct, 
the political party of the proletariat, good at summing up rich 
practical experience, will be able to lead the whole laboring 
people to overcome the sabotage of the class enemy and the ob¬ 
struction of natural calamities and realize rapid development 
of socialist production. 

The General Line Is a Compass for Building Socialism w ith 
Greater, Faster, and Better Results at Lower Costs 


After summing up the internal and external experience and 
lessons in socialist construction, in 1958 Chairman Mao formu¬ 
lated the General Line "go all out, aim high, and build socialism 
with greater, faster, and better results at lower costs." It is a 
Marxist line that fully utilizes the superiority of the socialist 
system, fully exercises the subjective initiative of people, and 
seeks to build socialism with greater, faster, and better results 
at lower costs. 

The General Line for socialist construction requires the unifi¬ 
cation of greater, faster, and better results at lower costs in 
socialist construction. "Greater" refers to the quantity of prod¬ 
ucts, "faster" refers to time, "better" refers to quality, and 
"lower costs" refers to less labor expenditure. The require¬ 
ments of greater, faster, and better results at lower costs are 
mutually reinforcing as well as interdependent. If we pay atten¬ 
tion only to greater and faster results at the expense of better 
results and lower costs, the result will be poor quality and high 
costs. From the viewpoint of the long term and the whole situa¬ 
tion, it does not really cause greater and faster results but 
rather smaller and slower results. If we pay attention only to 
better results and lower costs at the expense of greater and 
faster results, although product quality may be high, there will 
not be enough produced. The speed of construction will be too 
slow to satisfy the needs of the state and the people. Only if we 
can build socialism with greater, faster, and better results at 



334 Fundamentals of Political Economy 


lower costs can there by a truly rapid development and can the 
ever-increasing needs of the state and the people be satisfied 
to the greatest possible extent. The General Line for socialist 
construction and a whole series of "walking-on-two-legs" poli¬ 
cies formulated by Chairman Mao enable industry and agricul¬ 
ture, heavy and light industry, large-scale, medium, and small- 
scale industry, production by foreign and indigenous methods, 
and so forth to complement and promote each other, thus guar¬ 
anteeing the balanced development of the various sectors of 
China's socialist national economies. This General Line cor¬ 
rectly reflects the objective requirements of the basic economic 
laws of socialism, the law of rapid development in socialist pro¬ 
duction and the law of planned development of the national econ¬ 
omy, and the revolutionary will of the people of the whole coun¬ 
try to demand a rapid change in the backward appearance of the 
country. 

How can greater, faster, and better results at lower costs be 
achieved and smaller, slower, and worse results at higher 
costs be avoided in socialist construction ? The key lies in fully 
mobilizing mass activism in building socialism. Marxism has 
long held that "historical activities are the enterprise of the 
masses." (16) Chairman Mao teaches, "People, and only people, 
are the motive force of history." (17) Chairman Mao pointed 
out more than once that the masses have to be relied upon to 
seize political power and build socialism. The Lin Piao clique, 
loyal disciples of Confucius, slandered the masses in every 
possible way. They boasted that their "brains are not those of 
the ordinary peasant, nor those of the ordinary worker.” They 
tried hard to peddle a Confucian fallacy that "only the most in¬ 
telligent and most stupid are not subject to change," fully ex¬ 
posing their position as diehard enemies of the people. Nu¬ 
merous facts demonstrate that the most humble is the most in¬ 
telligent and the most noble is the most stupid. Only by fully 
trusting the masses, relying on the masses, respecting the in¬ 
novative spirit of the masses, mobilizing all constructive fac¬ 
tors, uniting all people that can be united, and as much as pos¬ 
sible, converting destructive factors into constructive ones can 



Socialist Production according to the General Line 335 


socialist revolution be victoriously unfolded on the political, 
economic, ideological, and cultural battlefronts and can social¬ 
ist production and scientific, cultural, and educational enter¬ 
prises be developed with greater, faster, and better results at 
lower costs. The General Line for socialist construction empha¬ 
sizes the combination of Party leadership and the broad people 
and is a new development of the Party's mass line on socialist 
construction. 

"Going all out and aiming high" refers to the spiritual condi¬ 
tion and subjective initiative of people. This shows that the 
General Line gives prominence to having proletarian politics in 
command and emphasizes the role of the revolutionary drive of 
the masses in socialist construction. The Party's task in social¬ 
ist construction is to lift the key link of political-ideological 
work, raise the socialist consciousness of the people with re¬ 
spect to socialism, help the masses master the Party's Marxist 
line and general and specific policies, and mobilize and orga¬ 
nize the broad masses to struggle for the great enterprise of 
building socialism. Chairman Mao teaches us: "Social wealth 
is created by the worker, the peasant, and the educated. As 
long as these people control their destiny, have a Marxist - 
Leninist line, and solve problems with a constructive attitude 
rather than avoiding them, any difficulty in the human world is 
solvable." (18) Once the broad revolutionary masses has mas¬ 
tered the Party's Marxist line, an immense revolutionary drive 
will be aroused and will become a substantial material force 
for creating miracles in the human world. The Great Leap For¬ 
ward in China's national economy appeared because of this. 

Realize a Great Leap Forward in the Nati onal Economy 
through Independence and Self-Reliance 


Under the guidance of the General Line, "Go all out, aim high, 
and build socialism with greater, faster, and better results at 
lower costs," the working class and the whole laboring people 
of China are high-spirited and combat ready. Their revolution¬ 
ary spirit of daring to think, speak, and act is sky-high. The 




336 Fundamentals of Political Economy 


upsurge in socialist competition to compare with, learn from, and 
catch up to the advanced and to help the backward is rising 
to an ever-greater height. The correct leadership of the Party's 
Marxist line enables China's national economy to develop vig¬ 
orously through independence and self-reliance. A great leap 
forward situation has appeared. 

Under the oppression and enslavement of imperialism, feudal¬ 
ism, and bureaucratic capitalism, the broad laboring people of 
China were in the grips of tremendous hardship and suffering. 
The national economy was at a standstill. For a long time, many 
industrial products for daily use were all imported from foreign 
countries. A box of now commonplace matches was called "for¬ 
eign fire," machine-woven fabrics were called "foreign cloth," 
and nails were called "foreign nails." There were also "foreign 
umbrellas," "foreign oil," and so forth. Foreign goods flooded 
the domestic market, driving out China’s domestic industries. 
This was what was left behind by old China. 

Since liberation, under the wise leadership of the Chinese 
Communist Party, the heroic Chinese working class and labor¬ 
ing people have stood up and are determined to transform the 
backward old China and construct a prosperous and strong so¬ 
cialist new China. The basic completion of socialist revolution 
in the ownership system of the means of production and the an¬ 
nouncement of the Party's General Line for socialist construction 
greatly propel the development of the socialist construction en¬ 
terprise. Amid the seething Great Leap Forward national up¬ 
surge, Chairman Mao pointed out: "We cannot follow the old 
path of technological development in other countries and crawl 
slowly along in others' footsteps. We must break conventions 
and adopt as much as possible new technology and build China 
into a socialist and modem power within a short historical pe¬ 
riod. The Great Leap Forward we are talking about means ex¬ 
actly this." (19) Under the guidance of the Marxist line formu¬ 
lated by Chairman Mao and the direction of the policy of na¬ 
tional construction on the basis of independence and self-reliance, 
the people of the whole country have developed their own re¬ 
spective industrial sectors. Not only is the field of light industry 



Socialist Production according to the General Line 337 


complete, it also produces enough for both self-sufficiency and 
export. The old days when the streets were full of imported 
goods are completely over. China's own machine-building in¬ 
dustry, metallurgical industry, chemical industry, scientific in¬ 
struments and meters industry, and electronics industry have 
rapidly been established and developed. In the development pro¬ 
cess of socialist industry, the lopsided concentration of indus¬ 
try in the maritime provinces which existed in old China has 
been changed. New industrial bases in the interior have been 
built, thus gradually rationalizing the location of production ca¬ 
pacities and meeting the needs of China's economic construction 
and national defense construction. In the practice of the Three 
Great Revolutionary Movements, new scientific and technical 
manpower has rapidly expanded, and the level of science and 
technology is rising continually. Many large pieces of precision 
equipment and major projects can now be designed and manu¬ 
factured by us without outside help. On this basis, China 
has exploded atomic and hydrogen bombs and sent up man-made 
satellites. China was the first country in the world to success¬ 
fully synthesize insulin, making an important contribution to the 
inquiry concerning the origin of life. China was the first coun¬ 
try in the world to successfully manufacture a double internal 
water-cooling turbogenerator. Under the guidance of Mao Tse- 
tung Thought, the Chinese people have broken through one after 
another scientific and technological barriers and have set new 
records by leaps and bounds. With the soaring leap in the de¬ 
velopment of industry, science, and technology, China's agricul¬ 
tural mechanization is also rapidly pushing ahead. Significant 
achievements have been won in China’s farmland water control 
construction, and the effective irrigation acreage has greatly 
expanded. The ’’eight-character charter” of soil, fertilizer, 
water, seeds, close planting, plant protection, and field manage¬ 
ment for higher agricultural output has been widely practiced. 

In the development process of China’s socialist construction, 
because of the sabotage and interference of the revisionist line 
pushed by the Liu Shao-ch’i and Lin Piao clique, a certain "hes¬ 
itation” once appeared for some time in some sectors. This 



338 Fundamentals of Political Economy 


was a manifestation of class struggle and the struggle between 
the two lines in the process of socialist construction. It is a 
struggle between progress and retrogression. Judging from the 
whole process and from the whole situation since the establish¬ 
ment of the Republic, China's national economy has been devel¬ 
oping by leaps and bounds under the guidance of the dominant 
Marxist line formulated by Chairman Mao. From 1949 to 1970, 
China's total value of agricultural production increased by 1.5 
times. The total value of industrial production increased by 
more than 18 times. Along with the development of industrial 
and agricultural production, China's communications and trans¬ 
portation, commerce, money and finance, and cultural and edu¬ 
cational enterprises have also rapidly advanced. The level of 
material and cultural life of the people has also been raised 
substantially. These indisputable facts cannot be denied by any¬ 
one. The Lin Piao clique vainly attempted to negate the brilliant 
achievements obtained by the Chinese people under the illumi¬ 
nation of the General Line by slanderously saying that "the national 
economy is stagnant." This merely further exposed their posi¬ 
tion as agents of imperialism, revisionism, and reaction, their 
hatred for socialism, and their wolfish ambition to restore cap¬ 
italism. 

The brilliance of the Party's basic line for the whole histori¬ 
cal stage of socialism and the General Line for socialist construc¬ 
tion illuminates our big strides forward. Our great socialist 
motherland is prospering and progressing. When we look to the 
future, we feel confident and expansive. What the Western bour¬ 
geoisie failed to do, the Eastern proletariat must and can 
achieve! 


Major Study Referen ces 


Lenin, "More on the Trade Union, the Present Situation, and 
the Errors of Trotsky and Bukharin." 

Stalin, Soci alist Economic Problems of the Sov iet Union. 
Chairman Mao, "We Must Pay Attention to Economic Work." 



Socialist Production according to the General Line 339 


Revie w Proble ms 

1. Why do we say that there is still a duality in socialist 
products and the socialist production process ? 

2. What are the major characteristics and requirements of 
the basic economic law of socialism ? Why do we say that in 
order to realize the purpose of socialist production, it is nec¬ 
essary to correctly handle the relations between politics and 
production and between politics and economics ? 

3. How do we carry through the Party's General Line for so¬ 
cialist construction in our practice? 

Notes 

1) Engels, Ant i-Duhring , Selected Works of Marx and 
Engels, Vol. 3, Jen-min ch’u-pan-she, 1972, p. 348. 

2) Ibid., p. 347. 

3) "Instructions (Draft) to the Soviet Organs of Various 
Areas by the Labor National Defense Committee," Complete 
W orks of Lenin , Vol. 32, p. 374. 

4) "Resolutions on Several Issues concerning the People's 
Commune," Documents of the Six t h Plenum of the Eighth Cen¬ 
tral Committee of the C hinese Co mmunist Pa rty, Jen-min 
ch’u-pan-she, 1958, p. 19. 

5) "How to Organize Competition ?" Se lected Works of 
Lenin , Vol. 3, Jen-min ch’u-pan-she, 1972, p. 393. 

6) Marx, Capital , Vol. 3, Jen-min ch’u-pan-she, 1966,p. 280. 

7) Ibid., p. 272. 

8) "May First Day," Complete Works of Lenin ,Vol. 7,p. 185. 

9) Communist Manifesto , Selected Works of Marx and 
Engels , Vol. 1, Jen-min ch’u-pan-she, 1972, p. 272. 

10) "Report to the Second Plenum of the Seventh Central Com¬ 
mittee of the Chinese Communist Party," Selected Works of 
Mao Tse-tung , Vol. 4, Jen-min ch'u-pan-she, 1968, p. 1318. 

11) "Eighth Congress of the Whole of Soviet Russia," Com¬ 
plete Works of Lenin , Vol. 31, p. 454. 

12) "The Great Innovation,” Selected Works of Lenin, 




340 Fundamentals of Political Economy 


Vol. 4, Jen-min ch'u-pan-she, 1972, p. 16. 

13) "On Protracted War," Sele cted Work s of Mao Tse-tung , 
Vol. 2, Jen-min ch ? u-pan-she, 1968, p. 437. 

14) "The Bankruptcy of the Idealist Interpretation of History,” 
Selected Wor ks of Ma o Tse-tung , Vol. 4, Jen-min ch'u-pan-she, 
1968, p. 1401. ‘ 

15) "On the Correct Handling of Contradictions among the 
People," Selected Rea dings from the Works of M a o Tse-tung , 
(Type A), Jen-min ch’u-pan-she, 1965, pp. 336-37. 

16) "The Sacred Clan," Complete Works of Marx and Engels, 
Vol. 2, p.104. 

17) "On Coalition Government," Selected Works of Mao Tse- 
tung , Vol. 3, Jen-min ch'u-pan-she, 1968, p. 932. 

18) Chairman Mao, "Comments on 'The Party Secretary Par¬ 
ticipates Physically, the Whole Party Operates the Coopera¬ 
tive,'" S ocialist Upsurge in China's Countryside , Vol. 1, 

pp. 5-6. 

19) Quoted from Hung-ch'i [Red Flag], 1965, No. 1. 




16 

The Socialist Economy 
Is a Planned Economy 


Planned and Proportional Development 
of the National Economy* 


Any social production involves a problem of regulating social 
labor, that is, the allocation of manpower (live labor) and ma¬ 
terial resources (embodied labor) among various production 
sectors. The regulation of social labor and production follows 
certain laws. To correctly identify and make use of the eco¬ 
nomic law regulating socialist production and to differentiate 
it from the economic law regulating capitalist production is 
very important for the development of socialist production with 
greater, faster, and better results at lower costs. 

The Law of Planned Development 
Regulates Socialist Production 

The Law of Planned Development Is the O pposite 
of the L a w of C ompetition and Chaotic Production 

In any large-scale social production, there exist close rela¬ 
tions of mutual dependence among various production depart¬ 
ments. For example, the textile industry needs agriculture to 


*She-hui-chu-i ching-chi shih chi-hua ching-chi — kuo-min 
chingrchi ti yu chi-hua an pi-li fa-chan. 


341 



342 Fundamentals of Political Economy 


supply cotton and the machine-building industry to supply spin¬ 
ning and weaving machines; the machine-building industry needs 
the iron and steel industry to supply a variety of rolled steel; 
and the iron and steel industry needs the coal industry to sup¬ 
ply raw coal and the machine-building industry to supply ex¬ 
tracting and digging machines, refining equipment, rolling 
equipment, and so forth. All these industrial and mining enter¬ 
prises need agriculture to supply the means of living, the power 
industry to supply electricity, and the communications and 
transportation departments to transport raw materials and fin¬ 
ished goods for them. These relations of mutual dependence 
among various departments and enterprises demand that they 
maintain proper proportions among themselves and supply what 
they produce to others to satisfy each other’s needs. Otherwise, 
social production will be obstructed or even disrupted. 

The capitalist society is a society with a high degree of so¬ 
cial production. What regulates the allocation of social labor 
among various production departments in this society? It is 
regulated by the law of competition and chaotic production and 
the law of value. The purpose of capitalist production is not to 
satisfy socialneeds but to realize value-augmentation to obtain 
profit. To go after bigger profits, the capitalists are engaged 
in a life-and-death struggle among themselves. Like flies going 
after filth, the capitalist shifts his capital around in response 
to the spontaneous movements of market prices to expand com¬ 
modity production first in this and then in that department. Un¬ 
der these conditions, the required proportional relations among 
production departments are often violated. Only after spontane¬ 
ous adjustments through the destruction of production capacities 
can the violated proportional relations be temporarily restored. 
Lenin’s statement that "capitalism must establish a balance 
which is regularly violated through crises" (1) exactly describes 
this situation. 

After the socialist system replaces the capitalist system,eco¬ 
nomic conditions are fundamentally changed. Socialist produc¬ 
tion is based on a public ownership system of the means of pro¬ 
duction, and its purpose is to satisfy the needs of the socialist 



The Planned Socialist Economy 343 


state and the whole laboring people. Under the socialist sys¬ 
tem, on the one hand, social production is further developed. 

It is all the more necessary to allocate social labor according 
to certain proportions and to maintain a proper balance among 
various production departments. On the other hand, the social¬ 
ist public ownership system of the means of production turns 
the laboring people into the masters of production. Their basic 
interests are identical. This eliminates the conflicts of interest 
among various departments and enterprises which are inherent 
in capitalism. Thus, the socialist state, which represents the 
interests of the proletariat and the whole laboring people, can 
allocate labor power and the means of production among various 
departments of the national economy under a unified plan in ac¬ 
cordance with the needs of the state and the people to enable the 
various departments of the national economy to develop in a 
proportional and balanced manner. It is exactly these economic 
conditions relied on by socialist production that eliminate the 
law of competition and chaotic production from the historical 
stage and render the law of value useless in regulating social 
production. They also give rise to a new economic law, namely, 
the law of planned development of the national economy, to reg¬ 
ulate social production and the development of the whole national 
economy. These inevitable changes after the replacement of 
capitalism by socialism were foreseen scientifically by Engels. 
He once pointed out, "Once society possesses the means of pro¬ 
duction, .. .the internal chaotic conditions in social production 
will be replaced by planned and conscious organization." (2) 

The Planned Economy Dem o nstrates the 
Superiori ty of the Socialist System 

The replacement of competition and chaotic production by a 
planned development of the national economy is an important 
aspect of the superiority of socialism over capitalism. 

The socialist planned economy indicates the beginning of man 
consciously creating his own history. In the capitalist society 
characterized by competition and chaotic production, things rule 




344 Fundamentals of Political Economy 


man, rather than man ruling things. The laborer cannot control 
his own fate; nor can the capitalist free himself from the blind 
manipulation of those objective economic laws that operate be¬ 
hind people's backs. In socialist society, the system of public 
ownership of the means of production has been realized, and 
the laboring people have become masters of society. They con¬ 
trol their own fate and consciously begin to make use of the ob¬ 
jective law to create their own history. These conscious activi¬ 
ties to create history are manifested in the process of practice 
as gradually identifying the objective law, formulating plans 
based on the objective law to transform Nature and society, and 
realizing anticipated results through organized activities. 
Chairman Mao hailed the conscious activities of China's labor¬ 
ing people to transform the world under the leadership of the 
Party and pointed out: "Human development has been going on 
for hundreds of thousands of years. In China, the conditions for 
a planned development of her own economy and culture have been 
obtained just now. With these conditions, the outlook of China 
will change year after year. There will be a greater change ev¬ 
ery five years. An even greater change will occur after several 
five-year periods." (3) 

The superiority of the socialist planned economy over capi¬ 
talist competition and chaotic production does not lie in its 
guarantee that the proportional relations among various produc¬ 
tion sectors can be absolutely balanced all the time. There is 
nothing in the world that can develop in an absolutely balanced 
manner. In the development process of the socialist economy, 
balance is only temporary and relative. Imbalance is permanent 
and absolute. Because of the ever-changing conditions between 
the advanced and the backward among various enterprises, var¬ 
ious sectors, and various regions, the obstruction and disrup¬ 
tion of bourgeois influence, the change in natural conditions, the 
limitation of people’s understanding of objective things, and so 
forth, conditions in which balance and the proportional relations 
are upset will still arise regularly. But, in socialist society, 
this kind of imbalance among various production sectors can 
be overcome continually through people's conscious activities 
and regulation by the socialist state plan. Compared with the 



The Planned Socialist Economy 345 


blind groping associated with competition and chaotic produc¬ 
tion, the continual overcoming of imbalance and the establish¬ 
ment of relative balance through regulation by plans permits 
the prevention of much wasted manpower, material resources, 
and funds so as to achieve a more rational and full utilization 
of social labor and to guarantee a rapid development of social¬ 
ist production. Chairman Mao pointed out: "The objective, long¬ 
term existence of the contradictions between social production 
and social needs requires the people to regulate them frequently 
through state plans. In China, there is an annual plan which ar¬ 
ranges for a proper proportion between accumulation and con¬ 
sumption in order to achieve a balance between production and 
needs. Here, balance refers to a temporary and relative unity 
of contradictions. After one year, speaking as a whole, this 
balance is upset by the struggle within contradictions, and this 
unity is changed. Balance turns into imbalance; unity becomes 
disunity. A second year’s balance and unity are required.” (4) 
Those viewpoints which regard the planned development of the 
socialist economy as being free from contradictions and as bal¬ 
anced development are metaphysical. The correct attitude 
should be to conduct scientific analysis of imbalances in the na¬ 
tional economy to find out their different conditions and to pre¬ 
scribe treatment accordingly. After the appearance of imbal¬ 
ance, we must treat it with a constructive attitude. We cannot 
rigidly pull down the high to suit the low. Instead, we must in 
good time pull up the backward sectors to establish a new bal¬ 
ance according to the needs and possibilities. Thus, the change 
from balance to imbalance and from imbalance to balance in the 
development process of the socialist economy implies the break¬ 
ing down of the old proportional relations and the establishment 
of new proportional relations at a higher level of development. 
This is precisely the concrete manifestation of the superiority 
of the socialist economy. 

The Proportio nal R elations in the 

Natio nal Economy Must Be H andled Co r rectly 

The socialist economy requires people to regulate the various 
mutually dependent sectors in the national economy with plans 


346 Fundamentals of Political Economy 


in order to make them develop proportionally. What then are 
the objective proportional relations among the various sectors 
of the national economy ? 

Proportional relations in the national economy are numerous 
and complex. The main proportional relations are as follows: 

First, the proportions between agriculture and industry. Ag¬ 
riculture and industry are the two basic mutually dependent 
production sectors. The staff and workers of the industrial 
sector require agriculture to supply them with food grains and 
various nonstaple foods. Light industry requires agriculture to 
supply it with raw materials. Both light and heavy industry need 
the agricultural sector as an important market for their prod¬ 
ucts. On the other hand, the rural population needs industry to 
supply industrial products for daily use. Agricultural produc¬ 
tion needs industry to supply it with chemical fertilizers, in¬ 
secticide, agricultural machinery, electricity, and other means 
of production. That part of the agricultural products not re¬ 
tained by the agricultural sector also needs industry and the 
urban population as a market. Because of the existence of these 
mutually dependent relations between agriculture and industry 
and because the relations between industry and agriculture are, 
in fact, relations between the worker and the peasant and be¬ 
tween the state ownership system and the collective ownership 
system, it is a key issue in a planned development of the na¬ 
tional economy to maintain a proper proportion between indus - 
try and agriculture in order to make them promote one another 
in the development process of the socialist economy. This is¬ 
sue will be discussed in greater detail in the next chapter. 

Second, the proportions within agriculture. This includes the 
proportions among agriculture (crop growing), forestry, animal 
husbandry, sideline production, and fishery, as well as the pro¬ 
portions among food grain, cotton, vegetable oil, bast fibers, 
silk, tea, sugar, vegetables, fruit, herbal medicines, and mis¬ 
cellaneous foodstuffs within crop growing itself. In the whole of 
agricultural production, the production of food grains occupies 
the most important position. Therefore, food grains must be 
insisted on as the key link when the proportional relations within 



The Planned Socialist Economy 347 


agriculture are handled. The development of cash crops, for¬ 
estry, animal husbandry, sideline production, and fishery can¬ 
not be divorced from the key link of food grains. However, this 
does not imply that the development of other items of agricul¬ 
tural production can be neglected. Take forestry as an example; 
it not only directly supplies products to society, but also 
serves an important function in conserving water and soil. 
’’Without trees on the mountain, water and soil cannot be re¬ 
tained; having a lot of trees on the mountain is as good as build¬ 
ing dams." The importance of forestry to agricultural develop¬ 
ment can thus be seen. The development of animal husbandry, 
sideline production, fishery, and cash crops cannot be neglected 
either. The development of forestry, animal husbandry, sideline 
production, and fishery is vital to national construction and the 
people’s living. It can also promote the further development of 
food grain production by accumulating capital funds and increas¬ 
ing fertilizers. The policy ’’take food grains as the key link and 
ensure an all-round development” formulated by Chairman Mao 
pointed out a direction for the correct handling of the propor¬ 
tional relations within agriculture. This policy requires, under 
the precondition of taking food grains as the key link, a consid¬ 
eration of the characteristics of different regions and an over¬ 
all arrangement for agriculture, forestry, animal husbandry, 
sideline production, and fishery as well as food grain, cotton, 
oil, bast fibers, silk, tea, and so forth in order to make them 
promote one another and develop as a whole. 

Third, the proportions within industry. These include the pro¬ 
portions between light and heavy industry, the raw materials in¬ 
dustry and the processing industry, national defense industry 
and foundation industry as well as the proportions between ma¬ 
jor machines and minor machines and between whole machines 
and spare parts within various industries. The proportional re¬ 
lations within industry are even more complex than the propor¬ 
tional relations within agriculture. But in the complex relations, 
there is still a key link. This key link is steel. With steel, we 
can make machines, and with machines, we can develop various 
industries. This key role of steel in industry reflects a major 



348 Fundamentals of Political Economy 


aspect of the proportional relations within industry and illus¬ 
trates that the development of the various sectors of industry 
must be based on the development of the iron and steel indus¬ 
try. In addition, other proportional relations must also be cor¬ 
rectly handled. In the relationship between heavy and light in¬ 
dustry, we must not neglect light industry when we give priority 
to the development of heavy industry. In the relationship be¬ 
tween the raw materials industry and the processing industry, the 
leading aspect of the contradiction is the raw materials indus¬ 
try. To develop the raw materials industry, especially the min¬ 
ing industry which is of decisive significance in the raw mate¬ 
rials industry, it is important to unfold socialist construction 
through independence and self-reliance and to maintain a bal¬ 
ance between the raw materials industry and the processing in¬ 
dustry. In the relationship between national defense industry 
and foundation industry, priority must be given to the develop¬ 
ment of foundation industries. Without the development of such 
foundation industries as the metallurgical industry, chemical 
industry, machine-building industry, electronic instruments and 
meters industry, and so forth, national defense industry cannot 
go very far. Only by closely linking the development of national 
defense industry with the development of foundation industry and 
by maintaining a relative balance between national defense in¬ 
dustry and foundation industry can national defense industry and 
industry as a whole be developed faster. In the relationships 
between major and minor machines and between whole machines 
and spare parts within industry, it must be noted that without 
the complement of minor machines, major machines simply 
cannot operate. With whole machines but without spare parts, 
whole machines have to stop operation once some parts are 
worn out. Therefore, we must overcome the tendency of empha¬ 
sizing major machines at the expense of minor machines and 
whole machines at the expense of spare parts in order to main¬ 
tain a proper proportion. 

The proportional relations within industry, within agriculture, 
and between agriculture and industry are three very important 
proportional relations in the whole national economy. This is 



The Planned Socialist Economy 349 


because among the economic links of production, exchange, dis¬ 
tribution, and consumption, production is the determining link. 
And agriculture and industry are also basic production sectors. 
Agriculture and light industry basically produce means of live¬ 
lihood. And heavy industry basically produces means of produc¬ 
tion. Once these three proportional relations are properly han¬ 
dled, the proportional relation between the two categories of 
social production (means of production and means of consump¬ 
tion) is basically arranged. 

Fourth, the proportions between industrial and agricultural 
production and the communications and transportation industry. 
Marx classified the transportation industry as the fourth mate¬ 
rial production sector, coming after the extractive industry, the 
processing industry, and agriculture. Large-scale social pro¬ 
duction requires that the various sectors and enterprises re¬ 
ceive their supply of raw materials, processed materials, and 
fuel in good time and that they ship their products to points of 
consumption in good time. Without a corresponding development 
in the communications and transportation industry, industrial 
and agricultural production will be greatly hindered. 

Fifth, the proportion between cultural and educational con¬ 
struction and economic construction. Cultural and educational 
construction serve economic construction. Economic construc¬ 
tion also promotes and restricts the development of cultural 
and educational enterprises. To construct a socialist country 
with modern agriculture, industry, and national defense, the de¬ 
velopment of modem science and culture is indispensable. The 
development of economic construction requires a corresponding 
development of cultural and educational construction in order 
to facilitate the continual supply of educated laborers who have 
a socialist consciousness. 

Sixth, the proportions between increases in production and the 
development of cultural and educational enterprises and in¬ 
creases in population. A planned development of goods produc¬ 
tion and cultural and educational enterprises objectively re¬ 
quires a planned increase in population, namely, family planning. 
Family planning is not only a basic precondition for the 



350 Fundamentals of Political Economy 


reproduction of labor power, but also a necessary condition for 
a planned arrangement of people’s livelihood, the protection of 
the health of the mother and the baby, and a planned develop¬ 
ment of socialist construction. Blind population increase will 
certainly interfere with a planned and proportional development 
of the national economy. In capitalist society, population prop¬ 
agation is as chaotic as the production of things. Family plan¬ 
ning applied over the whole society is inconceivable. Only un¬ 
der the condition in which the proletariat and the laboring peo¬ 
ple are the masters can it be possible to have a planned regula¬ 
tion of population increase simultaneously with a planned regu¬ 
lation of goods production. Family planning is a result of having 
the proletariat control its own destiny and is a manifestation of 
the superiority of the socialist system. 

Seventh, the proportional relations between accumulation and 
consumption. Because socialist products possess varying de¬ 
grees of commodity characteristics, in addition to the above- 
mentioned primarily material proportional relations, there ex¬ 
ists a proportional relationship based on value between accum- 
lation and consumption. If this proportional relationship is not 
properly handled, the development of the whole national economy 
will be hindered. This problem will be discussed in greater de¬ 
tail in Chapter 20. 

Finally, the proportional relations among various regions, 
namely, the rational distribution of production capacities. The 
socialist society develops from the capitalist society. Distribu¬ 
tion of production capacities in the capitalist society is formed 
under competition and chaotic production and embodies many 
irrational factors. Take the example of the early period after 
liberation in China in which the total value of industrial produc¬ 
tion in the seven provinces and two municipalities along the 
coast accounted for 73 percent of the total value of national in¬ 
dustrial production. In the iron and steel industry, 80 percent 
of its production capacity was distributed along the coast. There 
was almost no iron and steel industry in Inner Mongolia, the 
northwest, or the southwest where material reserves were 
abundant. In the textile industry, more than 80 percent of the 



The Planned Socialist Economy 351 


spindles and more than 90 percent of the weaving machines 
were distributed along the coast. There were very few textile 
factories in the cotton-producing area and the interior. There¬ 
fore, after the proletariat seized political power, it faced the 
task of geographically reallocating production capacities. A 
rational geographic distribution of production capacities must 
be such that it is conducive to consolidating and strengthening 
national defense against possible aggression and threats from 
imperialism. It must be favorable to strengthening the unity 
among the laboring people of various nationalities, to utilizing 
various resources in the most rational manner, and to building 
socialism with greater, faster, and better results at lower 
costs. The key issue in a rational distribution of production ca¬ 
pacities is to achieve "a distribution of large industries over 
the whole country with the highest possible degree of balance." (5) 
In the more than twenty years after the establishment of the 
Republic and under the guidance of Chairman Mao's theory on 
the correct handling of the relations between maritime industry 
and interior industry, China's interior industry has developed 
rapidly. The newly established industrial bases are beginning 
to take shape. Former industrial bases in the provinces and 
municipalities along the coast have also been fully utilized and 
rationally developed. 

The Law of Value Still Affects Socialist Production 


Planning Is Primary, and Pricing Secondary 

Socialist production is direct social production, and yet, to a 
certain extent, it is also commodity production. As commodity 
production, it has its own laws of operation. "Wherever there 
are commodities and commodity production, the law of value 
prevails." (6) Thus, both the law of planned development of the 
national economy and the law of value govern socialist produc¬ 
tion. 

The substance of the law of value is: (1) the value of commod-. 
ities is determined by the socially necessary labor time expended 



352 Fundamentals of Political Economy 


on their production; (2) commodity exchange must be based on 
equivalent values. These objective requirements of the law of 
value will assume different forms and produce different effects 
on production under different social systems. 

Under the capitalist system, social production is carried on 
under competition and chaotic production conditions. The price 
of commodities fluctuates with the change in the supply-demand 
relationship. Sometimes it is higher than the production price 
and sometimes, lower. When the price is higher than the pro¬ 
duction price, profit is higher than the average profit. When the 
capitalist sees this opportunity for higher profit, he is happy to 
invest his capital in these sectors. In the opposite situation, 
capital will be withdrawn. It is under these blind conditions that 
social production develops. These conditions demonstrate that 
the law of value is manifested as an alien force working behind 
people’s backs under the capitalist system and is the total regu¬ 
lator of social production. 

Under the socialist system, social production is carried on 
in a planned manner. Prices are based on values and are deter¬ 
mined by the state in a unified manner. Prices no longer fluctu¬ 
ate with the change in the supply-demand relationship. The law 
of value is no longer an alien force governing people. Basically 
speaking, it is consciously used by people to serve socialist 
construction. Furthermore, the effects of the law of value on 
social production have been greatly restricted. Their concrete 
manifestations are as follows: 

First, production in the socialist state enterprise is not sub¬ 
ject to fluctuations according to the level of prices and the size 
of profit. It is not regulated by the law of value, but rather by 
the national economic plan formulated according to the require¬ 
ments of the basic economic law of socialism and the law of 
planned development of the national economy. Based on the 
needs of the state and the people, the state plan decides what 
and how much to produce, and the state enterprise must thor¬ 
oughly carry this out. The enterprise must produce according 
to the plan regardless of profit. The loss is then made up by 
planned subsidies. If the leadership of an enterprise disobeys 



The Planned Socialist Economy 353 


the stipulations of the plan and expands production of highly 
profitable products of its own accord, it will violate the require¬ 
ments of the basic economic law of socialism and the law of 
planned development of the national economy and go astray on 
the capitalist road. 

Second, production in socialist rural collective enterprises is 
also carried out under the guidance of the state plan. Unlike the 
state enterprise, the collective enterprise is an economic unit 
responsible for its own profit and loss. The level of product 
prices and the size of income directly affect the accumulation 
of the collective and the income of its members. Other condi¬ 
tions being equal, the collective enterprise generally tends to 
be willing to produce more of those products which have low 
costs and command high economic income. In this respect, the 
law of value affects the production of the collective enterprise 
more than that of the state enterprise. However, the area sown 
for food grains, cotton, vegetable oil, and other major crops is 
decided by the state plan. The collective economy cannot arbi¬ 
trarily expand the sown area of those crops commanding a 
higher income. It can only increase the per-unit-area yield of 
these crops within the sown area specified by the state through 
more intensive farming, more fertilizers, and better manage¬ 
ment. Therefore, as for the production of major products in the 
rural collective economy, the regulating role of decisive impor¬ 
tance is still the law of planned development of the national 
economy. The law of value merely plays a secondary role. Only 
for products which are not important to the state and the people, 
not included in the state plan, nor procured through contracts 
are the level of prices and the size of income of greater impor¬ 
tance. Products which command a higher revenue develop eas¬ 
ily, while products which command a lower revenue develop only 
with great difficulty. The law of value performs a certain regu¬ 
lating role only with regard to these products. 

As far as the whole of socialist production is concerned, the 
plan is primary, and the price is secondary. This is to say, in 
the allocation of social labor among various production sectors, 
what and how much to produce are regulated by the state plan 



354 Fundamentals of Political Economy 


which reflects the requirements of the basic law of socialism 
and the law of planned development of the national economy. The 
state plan plays a primary and decisive role. The law of value 
is still useful, but it plays only a secondary and supportive role. 

The Law of Value Is a Great School 


In socialist production, not only are the form and degree of 
effect of the law of value different from those applicable to cap¬ 
italist production, but the social consequences are also different 

Under the capitalist system, blind regulation of production by 
the law of value, on the one hand, promotes advances of produc¬ 
tion technology. On the other hand, it inevitably leads to an im¬ 
mense waste of social wealth and mass bankruptcy among the 
medium and small enterprises, and intensifies class contradic¬ 
tions in capitalist society. 

Under the socialist system, the proletarian party and the so¬ 
cialist state are capable of identifying the objective role of the 
law of value and can make use of its constructive effects on so¬ 
cialist production and restrict or eliminate its negative effects. 

In the development process of socialist production, the direc¬ 
tion of the effects exerted by the law of value and the law of 
planned development of the national economy is sometimes iden¬ 
tical. For example, the law of planned development of the na¬ 
tional economy requires the acceleration of production of cer¬ 
tain cash crops to meet the demand for raw materials due to a 
rapid development of some light industries. The prices of these 
cash crops can also guarantee a reasonable income to the agri¬ 
cultural collective economy. Under these conditions, the state 
plan’s requirements for increased production are identical to 
the requirements of the agricultural collective economy for in¬ 
creased production and increased income. The plan for in¬ 
creased production can generally be fulfilled or overfulfilled. 
However, the direction of the effects exerted by these two ef¬ 
fects can be different. With regard to the comparative price re¬ 
lations between food grain crops and cash crops and among var¬ 
ious cash crops within agricultural production, the prices of 



The Planned Socialist Economy 355 


some cash crops can bring a relatively higher income to the 
collective economy than the prices of other cash crops. If the 
law of value is permitted to influence production, it will be det¬ 
rimental to the requirement of the national economic plan that 
there be an overall increase in production of all crops but in 
varying degrees for different crops. Thus we can see that when 
the effects of the two laws are identical, the law of value plays 
a constructive role in fulfilling the state plan. But when the ef¬ 
fects of the two laws are not identical, the law of value disrupts 
the fulfillment of the state plan and plays a negative role. The 
so-called conscious use of the law of value means that the role 
of the law of value must be comprehensively understood and 
that through political and ideological work, arrangement of the 
state plan, and price policy, the positive role of the law of value 
will be played and its negative role will be curtailed so that its 
effects on socialist production will be conducive to fulfilling the 
state plan. Our Party and government have consistently empha¬ 
sized socialist education of the peasant and planned leadership 
of agricultural production. At the same time, they have also 
paid attention to the rational arrangement of the purchasing 
prices of agricultural and sideline products and to the compara¬ 
tive price relationships among various agricultural and sideline 
products and have struggled hard to be able both to satisfy the 
state's need for agricultural and sideline products and to pro¬ 
mote the development of commune and brigade production and 
the elevation of the commune members' income, thus correctly 
handling the interests of the state, the collective, and the indi¬ 
vidual . 

The conscious exercise of the law of value by the socialist 
country to promote socialist production is also manifested in 
its use in the system of economic accounting to carry through 
the policy of running an enterprise with industry and frugality. 
Based on the requirement of the law of value, the socialist coun¬ 
try charges the same price for identical products according to 
the average social expenditure in producing the product. But be¬ 
cause of different conditions in production technology and differ¬ 
ent levels of management and operation, the individual labor 



356 Fundamentals of Political Economy 


expended on the same product in different enterprises may dif¬ 
fer. The individual expenditure in enterprises which are expe¬ 
rienced in mobilizing the masses, continually updating produc¬ 
tion technology, and lowering costs by careful and detailed cal¬ 
culation may be lower than the average social expenditure. They 
can thus fulfill and overfulfill the plan targets assigned by the 
state and occupy an advanced position. Conversely, enterprises 
which are careless, wasteful, conservative, and inefficient in 
mobilizing the masses to transform their backward technologi¬ 
cal conditions may have individual labor expenditures which are 
higher than the average social expenditure. They cannot fulfill 
the plan targets assigned to them by the state and occupy a 
backward position. Therefore, the unified prices set by the so¬ 
cialist state, making use of the law of value, are conducive to 
exposing the contradictions of various enterprises in operation 
and management and discovering the disparities between the ad¬ 
vanced and the backward in order to press various enterprises 
continually to improve their operation and management, lower 
their production costs and carry through the policy of running 
an enterprise with industry and frugality. 

The correct application of the law of value can teach us: to 
follow the requirements of the law of value to set prices ra¬ 
tionally; to organize production rationally using the influence of 
the law of value; to calculate precisely the volume of production 
and tap production potentials based on actual conditions; and to 
improve production methods, lower production costs, and imple¬ 
ment economic accounting continually. These positive roles dem¬ 
onstrate that the law of value is a great school. Stalin observed: 
"This is a very good practical school. It promotes the rapid 
growth of our cadres in economic work so they become real 
leaders in the socialist production of the present stage." (7) 

In socialist society, the proletariat wants to make use of the 
law of value to promote the development of socialist construc¬ 
tion while the bourgeoisie tries hard to use the law of value to 
set up free markets and disrupt socialist construction. The Liu 
Shao-ch’i and Lin Piao clique tried hard to exaggerate the role 
of the law of value. They emphasized the "almighty nature" of 



The Planned Socialist Economy 357 


the law of value and advocated the law of value as a regulator 
of social production. In their capitalist restoration, the Soviet 
revisionist renegade clique has flagrantly used the law of value 
as ”an objective regulator of socialist social production.” It has 
also launched a ”new economic system” centering on putting 
profit in command and having material incentives in accordance 
with this revisionist theory. Even though the measures taken by 
the internal and external revisionists are sometimes different, 
their purpose is the same, namely, to disrupt socialist con¬ 
struction and restore capitalism. The experience reflected in 
the struggles between the two lines with respect to the question 
of the law of value tells us that it is necessary to draw a de¬ 
marcation line between Marxism and revisionism and firmly 
adhere to the socialist road if the law of value is to correctly 
serve socialist production. We should never be careless; other¬ 
wise we will lose our way. 

The National Economic P lan Must 

Correctly Reflect Objective Laws 


Wor k on the Nat ional Eco nomic Plan Must 
Reflect the Requirements of Objectiv e Laws 

The law of planned development of the national economy and 
the law of value are both economic laws that objectively exist 
in socialist society. The roles of these laws are realized basi¬ 
cally through their conscious application. The national economic 
plan of the socialist state is a form of conscious application of 
these laws. Work on the national economic plan includes re¬ 
search, formulation, implementation, inspection, adjustment, 
and summation. Without the work on the national economic plan, 
it is impossible to realize a proportional development of the so¬ 
cialist national economy. Of course, even if people do not con¬ 
sciously apply them, the law of planned development of the na¬ 
tional economy and the law of value will eventually prevail. For 
example, if the economic leadership organs did not seriously 
investigate and study, did not respect the objective requirements 







358 Fundamentals of Political Economy 


of the law of planned development, or formulated the propor¬ 
tions carelessly or if they formulated the price plan without 
considering the requirements of the law of value and set prices 
arbitrarily such that the socially necessary expenditure of some 
production departments was not compensated and production 
could not be continued, then various dislocations would appear 
in mutually dependent departments. These phenomena would 
teach people by negative example to respect these laws and to 
reflect the requirements of these laws by strengthening and 
improving the work on the national economic plan. 

An important link in the work on the national economic plan 
is the formulation of plans. Plans are formulated by people and 
are products of ideology. Ideology is a reflection of reality and 
also interacts with reality. A correct plan promotes a rapid 
development of the socialist economy. An incorrect plan hinders 
the development of the socialist economy. 

If the national economic plan is to be correct, it is necessary 
first of all for the people to reflect the objective requirements 
of the law of planned development in all its aspects in the for¬ 
mulation process of the plan. This is by no means easy. In so¬ 
cialist society, the bourgeoisie and all exploitative classes al¬ 
ways try hard to disrupt and interfere with the planned develop¬ 
ment of the national economy by various means and make it dif¬ 
ficult for the proletariat to understand this law. The whole na¬ 
tional economy appears to be a complex entity full of contradic¬ 
tions. Imbalances continually pop up and are resolved and then 
pop up again. Objective conditions are highly changeable. It is 
not easy for the subjective to correctly reflect the objective. 

But this is not to say that the proportional relations in the na¬ 
tional economy cannot be identified. Provided that we continu¬ 
ally sum up experience, penetratingly investigate and study, se¬ 
riously analyze, rely on the masses, and do meticulous work, 
it is entirely possible to gradually identify the law and make the 
national economic plan more accurately reflect the require¬ 
ments of planned development. 

The law of planned development of the national economy 
merely requires that harmonious proportional relations be 



The Planned Socialist Economy 359 


maintained among interdependent sectors in the development 
process. It does not point out for us the direction and duties of 
socialist economic development. It is the basic economic law 
of socialism that points out the basic direction and the duties 
for socialist economic development. Therefore, an accurate 
national economic plan must correctly reflect not only the re¬ 
quirements of the law of development, but also the requirements 
of the basic economic law of socialism in its various aspects. 
The national economic plan which reflects the requirements of 
these objective laws embodies the interests of the proletariat 
and the whole laboring people. It is the Party program for eco¬ 
nomic construction and must be seriously treated and resolutely 
implemented. 

Overall Bal ance Is the Basic 
Method in Planning Work 

In the work on the national economic plan, it is important to 
master overall balance. Overall balance is not balance within 
individual sectors. It is balance in agriculture, balance in in¬ 
dustry, and balance between industry and agriculture. Overall 
balance is the basic method in a planned economy. 

The task of overall balance lies mainly in the arrangement 
of proportional relations in the national economy. In accordance 
with the major tasks of the state in the planning period, it prop¬ 
erly allocates manpower, material resources, and finance to 
various sectors of the national economy and establishes a bal¬ 
ance between social production and social needs so that the 
growth of production of the means of production corresponds to 
the needs of the ever-developing socialist production and so 
that the growth of production in the means of consumption con¬ 
forms to the needs arising from the gradual improvement of the 
people's livelihood. 

The process of overall balance is a process of exposing, ana¬ 
lyzing, and resolving contradictions. To do a good job in over¬ 
all balance, we must handle contradictions with a positive atti¬ 
tude, energetically promote production of short-range products (8), 



360 Fundamentals of Political Economy 


and accelerate the development of key sectors in the national 
economy that are temporarily backward so that a new balance 
can be established on a new and higher level. Only in this way 
can national defense construction, capital construction, and the 
needs of the people's livelihood be better safeguarded. To op¬ 
pose Chairman Mao's proletarian revolutionary line, the Liu 
Shao-ch’i clique sometimes suggested so-called "short-run bal¬ 
ance" and practiced negative balance in a big way to pull down 
the high to suit the low. Sometimes they set targets so high that 
they were not feasible. When these targets could not be reached, 
they resorted to "total retreats." They pushed a Right oppor¬ 
tunist line in planning work that was "Left" in form but Right in 
substance. 

Overall balance is the establishment of a balance in the whole 
national economy. But it is not an even application of force with¬ 
out differentiating what is more and less important. If two hands 
had to catch ten fish at one time, the result would be that no fish 
could be caught. In the complex proportional relations of the 
whole national economy, there are the more and the less impor¬ 
tant, the dominant and the subordinate. To achieve overall bal¬ 
ance, we must differentiate the more and less important and 
guarantee to take care of the key points. We must first guaran¬ 
tee the satisfaction of the needs of the leading links and the key 
sectors in the development of the national economy. In formu¬ 
lating a plan for capital construction, the principle of concen¬ 
trating forces to fight a battle of annihilation must be imple¬ 
mented. If we start from departmentalism, pay no attention to 
what is more important and what is less important, concentrate 
on too many items, and spread the limited manpower, material 
resources, and funds thinly over a long battlefront, then our 
forces will be dispersed, and the early completion and operation 
of many key items will inevitably be affected. Of course, safe¬ 
guarding the key points does not mean neglecting ordinary things. 
There are close complementary relations between the key points 
and ordinary things. Ordinary things will not develop properly 
if we neglect the key points. But if we neglect ordinary things, 
the development of the key points will also be affected. There¬ 
fore, under the precondition of taking care of the key points, we 



The Planned Socialist Economy 361 


must also pay attention to ordinary things. We must start from 
the whole and consider all vertical and horizontal relations in 
order to avoid the error of partiality. 

In overall balance work, attention must be paid to the balance 
of labor, materials, and funds. People are the most important 
factor in the productive forces; so of the three, the balance of 
labor must be arranged first. In conformity with the principle 
that agriculture is the foundation of the national economy, suffi¬ 
cient labor must first be secured for agriculture. Laborers 
will be transferred from agriculture to industry or other sec¬ 
tors of the national economy only when the development of agri¬ 
cultural production and agricultural mechanization enables the 
rural areas to succeed in providing surplus labor power and 
more marketable grain and commodity crops. If we depart from 
this prerequisite and transfer too much labor power away from 
agriculture, it will disrupt the overall balance and be unfavor¬ 
able to the rapid, planned, and proportional development of the 
national economy. 

There is an inevitable process between the appearance of im¬ 
balances among various sectors of the national economy and the 
establishment of a new balance. To guarantee a proportional 
development among various sectors, it is necessary to establish 
and maintain a certain amount of material reserves. The amount 
of material reserves of various kinds must be appropriate. If 
the reserves are too low, they cannot satisfy the needs for filling 
the gap between two relative balances. As a result, some sec¬ 
tors will have to work below capacity because of a shortage in 
certain material resources, and this will affect the rapid devel¬ 
opment of the national economy. If the material reserves are 
so high as to exceed the need for filling a temporary shortage, 
then material resources which could have been used for current 
production will not be available, and this will also adversely af¬ 
fect the rapid development of the national economy. 

Follow the B asic P rinciple s of Planning Wo rk 

To do a good job in planning work, in addition to the use of the basic 
method of overall balance, it is also necessary to follow some basic 
principles derived from the practical experience of planning work. 



362 Fundamentals of Political Economy 


Planning work must mobilize central as well as local activ¬ 
ism and must combine central, unified leadership with the ex¬ 
ercise of local activism. 

To formulate and carry through a unified national economic 
plan, it is necessary to have a highly centralized and unified 
leadership. In national economic planning work, there can be 
no unified national economic plan if there is no central unified 
leadership and if the viewpoint of the whole situation is not pro¬ 
moted and excessive decentralization is not opposed so that ev¬ 
ery local unit can make its own plans. However, socialist cen¬ 
tralized leadership is built on a wide foundation of democracy. 
Central unified leadership must be combined with local activ¬ 
ism. In formulating a national economic plan, the central de¬ 
partments concerned must find out what the local opinion is, 
consult with the local units, and formulate plans with the local 
units. In implementing the plan, it is also necessary to allow 
exceptions for local conditions. These exceptions are not ex¬ 
cuses for creating independent kingdoms, but are necessary al¬ 
lowances that suit the interests of the whole, permit full tapping 
of production potentials in accordance with local conditions, and 
facilitate a better fulfillment of the national economic plan. As 
for the system of planning work, it is necessary to implement 
a system with a unified plan and administration by different lev¬ 
els. Chairman Mao pointed out early in the establishment of the 
People’s Republic of China: ’’What should be unified must be 
unified. Excessive decentralization cannot be permitted. But it 
is necessary to combine unification with local adaptations.” (9) 
Later, Chairman Mao taught us more than once to exercise lo¬ 
cal activism more often in handling the relations between the 
center and the local units. Under a central, unified plan, the lo¬ 
cal units should be allowed to do more. Following Chairman 
Mao’s teachings, the broad people of the country criticized and 
repudiated the "dictatorship by regulations” fostered by the Liu 
Shao-ch’i clique that stifled local activism, and they better ex¬ 
ercised central and local activism in plan management work, 
thus promoting the rapid, planned, and proportional development 
of China's socialist economy. 



The Planned Socialist Economy 363 


Chairman Mao remarked, ’’When the plan is being formulated, 
it is necessary to mobilize the masses and to leave leeway." (10) 
This is a very important principle in national economic plan¬ 
ning work. 

In socialist construction, the mass line must be followed 
whatever the work may be. Mass movements must be launched 
in a big way. Planning work must also follow the mass line.The 
masses must be mobilized to talk about lines, expose contradic¬ 
tions, uncover disparities, and accelerate changes. If the plan 
targets are not discussed by the masses, they are the ideas of 
the cadre. Only after the plans are discussed by the masses do 
they become the plans of the masses. Only then will the plan 
targets be both advanced and reliable and will the activism of 
the broad masses be fully mobilized. 

Plan targets should be advanced. Only an advanced plan can 
embody the superiority of the socialist system, and only an ad¬ 
vanced plan can heighten morale. To formulate an advanced 
plan, it is necessary to struggle with conservative thought. Some 
people clearly realize there is immense production potential 
but they set the plan targets very low. All they care about is to 
be able to fulfill the plan comfortably. The formulation process 
of a plan is also a process of struggle between advanced and 
conservative thought. 

Plan targets should be advanced. But this does not mean that 
the higher the targets, the more morale will be heightened. Plan 
targets that are too high to be practicable not only do not mobi¬ 
lize mass activism, but will discourage mass activism. Ad¬ 
vanced plan targets must have a scientific basis; they must be 
reliable and practicable. Chairman Mao said: "Nobody should 
indulge in illusions, plan his action beyond what the objective 
conditions allow, and dare to do impossible things." (11) Plan 
targets that are objectively possible should not be setloo high. 
Leave some leeway. Practical experience demonstrates that 
plan targets which are not set too high and which enable the plan 
to be overfulfilled through the efforts of the masses are more 
favorable to mobilizing mass activism. 

It is necessary to combine long-range plans (plans covering 



364 Fundamentals of Political Economy 


five years, ten years, twenty years) with short-term plans (an¬ 
nual plans, quarterly plans, and monthly plans) in national eco¬ 
nomic planning. If long-range plans are not set up, it is diffi¬ 
cult to arrange capital construction. Long-term plans embody 
long-term targets. They encourage people to stand high, to see 
afar and to exert themselves. The worker comrades put it well: 
"Without big targets in our minds, even one simple straw is 
heavy enough to bend our backs. With big targets in our minds, 
even the T'ai-shan will not bend our backs." But long-term 
plans require that short-term plans materialize, are grasped, 
and serve the purpose of comparison and inspection so that the 
realization of long-term plans will not fall short. 

The planning work for an economy under a socialist collective 
ownership system has its own characteristics. An economy un¬ 
der a collective ownership system must obey the leadership of 
a unified state plan. But it can retain a higher degree of flexi¬ 
bility provided that the unified state plan and state policies and 
laws are not violated. This permits a fuller mobilization of the 
activism and initiative of the collective economy in socialist 
production through local adaptations so that the collective econ¬ 
omy can develop with the development of the state economy. 

Major Study References 

Engels, Anti-Duhring , Part 3, Chapter 2. 

Stalin, Socialist Economic Problems of the S ovie t Union. 

Chairman Mao, "On the Correct Handling of Contradictions 
among the People," Section 1. 

Review Problems 


1. Why do we say that only socialist society can adopt a 
planned economy ? What is the superiority of a socialist 
planned economy ? 

2. What are the important proportional relations in the na¬ 
tional economy ? How should these proportional relations be 
correctly handled ? 



The Planned Socialist Economy 365 


3. What does planning is primary and pricing is secondary 
tell us ? How should the law of planned development and the 
law of value be correctly used to promote the development of 
socialist production ? 


Notes 

1) "A Criticism That Is Not a Criticism," Complete W orks 
o f Len in, Vol. 3, p. 566. 

2) Engels, Anti -Duh ring , S electe d Works of Marx and En¬ 
gels, Vol. 3, Jen-min ch’u-pan-she, 1972, p. 323. 

3) Chairman Mao, "Comments on 'A Long-Term Plan for 
the Red Star Collective Farm,' " Socialist Upsurge in China’s 
Count ryside , Vol. 1, p. 311. 

4) "On the Correct Handling of Contradictions among the 
People," Sel ected Re ading s from t he Works of Mao Tse-t ung, 
(Type A), Jen-min ch’u-pan-she, 1965, p. 338. 

5) Engels, Anti-Duhring, Selected Workj of Marx and En¬ 
gels, Vol. 3, Jen-min ch'u-pan-she, i972, p. 336. 

6) Stalin, Socialist Economic Proble ms of the Soviet U nion, 
Jen-min ch’u-pan-she, 1961, p. 14. 

7) Ibid., p. 15. 

8) Short-range products refer to the means of production 
that are in temporary short supply. The so-called "short-range 
balance" refers to a negative balance that accommodates these 
short-range products. 

9) Quoted from Jen-min jih-pao [People’s Daily], Decem¬ 
ber 4, 1949. 

10) Quoted from J en-min jih-pao [People’s Daily], Febru¬ 
ary 21, 1969. 

11) Chairman Mao, "Preface to Socialist Ups urge in China’s 
Countryside,’' S ocia list Upsurge in China ’s C o untr yside, 

Vol. 1, p. 4. * . 








V 

We Must Rely on Agriculture as the Foundation 
and Industry as the Leading Factor in 
Developing the National Economy 


The Relations among Socialist Agriculture, 
Light Industry, and Heavy Industry* 


Agriculture and light and heavy industry are the three major 
material production sectors in the socialist national economy. 
To understand correctly the importance and role of these sec¬ 
tors in the national economy and to handle correctly their rela¬ 
tions are instrumental in consolidating and developing the 
worker-peasant alliance and promoting rapid and planned de¬ 
velopment of the socialist national economy. 

Agriculture Is the Fo un dation 
of the National E conomy 

We Must Rely o n Agriculture as the Foun dation 
in Developing the Na t ional Economy 

To live, to produce, and to engage in cultural and social ac¬ 
tivities, people must first solve the problem of eating. Agricul- 

*Fa-chan kuo-min ching-chi pi-hsu i nung-yeh wei chi-ch'u 
kung-yeh wei chu-tao — she-hui-chu-i nung-yeh ch'ing kung- 
yeh ho chung kung-yeh ti hsiang-hu kuan-hsi. 


366 



The Role of Agriculture and Industry 367 


tural production is a precondition for the survival of the human 
race and all production activities. Agriculture (including gath¬ 
ering, planting, hunting, fishing, and animal husbandry) was the 
only production sector in the early period of human society. At 
that time, because labor productivity was very low, the whole 
labor power of the primitive society had to participate in agri¬ 
cultural labor to keep the commune members alive. Only when 
labor productivity in agriculture was raised such that a portion 
of the labor force could grow sufficient agricultural products to 
support all the members of society could labor be spared to en¬ 
gage in other activities. Thus, the handicraft industry was sep¬ 
arated from the agricultural sector to become an independent pro¬ 
duction sector, the other new sector — commerce — appeared, 
and sectors that were concerned with spiritual production such 
as culture and education also emerged. The higher the labor 
productivity was in agriculture, the more developed were the 
sectors outside of agriculture that were concerned with mate¬ 
rial and spiritual production. Marx observed, ’’The shorter the 
time required by society to produce wheat and livestock, the 
longer is the time available for other production — material and 
spiritual production.” (1) He continued, ’’Agricultural labor pro¬ 
ductivity beyond what is required for the personal needs of the 
laborer is the basis of all societies.” (2) Therefore, in essence, 
agriculture is the basis of human survival and the basis for the 
independence and further development of the other sectors of 
the national economy. This is an economic law applicable to all 
historical periods in human society. 

The role of agriculture as the foundation in the national econ¬ 
omy is especially pronounced in socialist society as compared 
with any past society. In capitalist society, the objective law of 
agriculture as the foundation of the national economy plays its 
role under competition and chaotic production. Some imperial¬ 
ist countries whose domestic agriculture was underdeveloped 
plundered their colonies and semicolonies for agricultural prod¬ 
ucts by paying low prices to satisfy the development needs of 
monopoly capital. In those countries, it was not domestic agri¬ 
culture, but foreign agriculture, that served as a foundation of 



368 Fundamentals of Political Economy 


the national economy. In socialist society, it is not permissible 
to plunder the agriculture of backward countries. Even if ex¬ 
changes are made according to equal values, it is still not per¬ 
missible to rely on foreign countries for food or to develop the 
socialist economy on the basis of foreign agriculture. To do so 
would be contrary to the principles of independence and self- 
reliance. In organizing the development of the national economy, 
the socialist country must consciously apply the objective law 
of agriculture as the foundation of the national economy. 

In concrete terms, the primary reason that the development 
of the socialist national economy must rely on agriculture as 
the foundation is that the development of the various depart¬ 
ments of the socialist economy depends on agriculture to pro¬ 
vide the means of subsistence. Regardless of the enterprise, 
be it industry, transportation, or education, it always boils down 
to the prerequisite that agriculture has to provide a certain 
amount of commodities and grain. 

Another reason that agriculture is the foundation for develop¬ 
ing the socialist national economy is that it is the source of in¬ 
dustrial raw materials, with the exception of a portion of the 
supply which comes from industry itself. Raw materials for 
light industry in particular are essentially provided by agricul¬ 
ture. At present, approximately 70 percent of the raw materials 
for our light industry is provided by agriculture. Heavy indus¬ 
try also needs certain agricultural products as inputs. If agri¬ 
culture could not increase its supply of raw materials, indus¬ 
trial development would be gravely affected. Chairman Mao 
pointed out: "Light industry and agriculture are closely related. 
There will be no light industry without agriculture." (3) Agri¬ 
culture is directly related to industrial development, particu¬ 
larly to light industry. 

Another reason why agriculture is the foundation for develop¬ 
ing the socialist national economy is that the rural areas con¬ 
stitute a vast market for industrial products. The rural popula¬ 
tion, accounting for approximately 80 percent of the total, forms 
a major market for industry. The more developed agricultural 
production is, the more commodity grains and industrial raw 



The Role of Agriculture and Industry 369 


materials will be produced, and the higher the peasants’ pur¬ 
chasing power will be. The peasants' need for both light and 
heavy industrial products continuously grows. Soon after the 
victorious implementation of China's cooperativization, Chair¬ 
man Mao observed: "At present, people have not yet clearly 
realized the point that heavy industry must take agriculture as 
its primary market. With the steady advancement of agricul¬ 
tural technology and its ever-increasing modernization, such 
that more and more machinery, fertilizers, water conservancy, 
and power and transportation facilities will be available for ag¬ 
riculture and more fuels and construction materials will be 
available to private consumption, then people will comprehend 
that agriculture is the primary market for heavy industry." (4) 

Another reason why agriculture must be relied on as the 
foundation in developing the socialist national economy is that 
agriculture is the reservoir of labor power for industry and 
other sectors of the national economy. To develop socialist in¬ 
dustry, commerce, and transportation, additional labor is re¬ 
quired. In addition to trying hard to raise labor productivity in 
these sectors in order to use the labor force thus saved for new 
needs, additional labor comes partly from the urban areas and 
partly from the rural areas. Chairman Mao pointed out, "The 
peasant is the predecessor of the Chinese worker." (5) How¬ 
ever, how much of the rural population can be transferred as 
labor force to support the development needs of other sectors 
of the national economy is not determined by these development 
needs, but by the level of development of agricultural production 
and by how much agricultural labor productivity can be increased. 
Only under the conditions that agricultural labor productivity is 
continuously being raised and the output of agricultural and side¬ 
line products is continuously increasing is it possible to trans¬ 
fer an appropriate amount of labor force to support the develop¬ 
ment of other sectors of the national economy. 

Another reason why agriculture must be relied on as the foun¬ 
dation in developing the socialist national economy is that agri¬ 
culture is an important source of state capital accumulation. In 
addition to directly providing the state with capital accumulation 



370 Fundamentals of Political Economy 


through agricultural taxes, it indirectly provides capital accu¬ 
mulation to the state by supplying agricultural products to light 
industry as raw materials. Therefore, the development of agri¬ 
culture also assumes significance in increasing the state reve¬ 
nue, expanding capital accumulation, and supporting socialist 
construction. 

Viewed from the above several aspects, the importance and 
role of agriculture in the national economy determine that the 
development of the national economy cannot be separated from 
the development of agriculture. If agriculture is not properly 
developed, other sectors of the national economy will not pros¬ 
per either. The experience of China's socialist construction has 
demonstrated that if there is a bumper harvest in a particular 
year, the development of the national economy will accelerate 
in the same year or in the following one. Conversely, if there 
is a lean year, the development of the national economy will 
slow down in the same year or the next one. This tells us that 
in socialist construction we must firmly establish the idea 
of relying on agriculture as the foundation for developing the 
national economy. 

The Ultimate Solution for Agriculture 
Lies in Mechanization 


Since agriculture is the foundation of the national economy, 
it is necessary to treat the development of agriculture as a pri¬ 
ority in developing the national economy. Only when agriculture 
is developed as the foundation of the national economy can light 
industry, heavy industry, and other economic, cultural, and ed¬ 
ucational enterprises be developed. 

How can agriculture be developed ? The socialist country can¬ 
not adopt agricultural mechanization before agricultural collec¬ 
tivization. Agricultural collectivization must precede the use of 
large machines. But after the realization of agricultural collec¬ 
tivization, it is very important to realize agricultural mecha¬ 
nization on the basis of agricultural collectivization. On the eve 
of China's upsurge in agricultural cooperativization, Chairman 




The Role of Agriculture and Industry 371 


Mao had already pointed out that China's countryside required 
not only the realization of the social reform of converting the 
individual ownership system to the collective ownership sys¬ 
tem, but also the realization of the technical innovation of con¬ 
verting hand labor to mechanical production. 

"Only when the socialist transformation of her social economic 
system is thoroughly completed and machine operation is fully 
adopted in all sectors and areas where machine operation is 
feasible in her technology can China's social economic outlook 
be completely transformed." (6) After the victorious realization 
of China's agricultural cooperativization and rural people’s 
communes, Chairman Mao opportunely proposed the grand task 
of steadily realizing agricultural mechanization. He clearly 
pointed out, "The ultimate solution of the agriculture problem 
lies in mechanization." When the stimulative role of socialist 
production relations with respect to the productive forces is 
fully exploited and with the support of socialist industry, espe¬ 
cially heavy industry, the pace of achieving agricultural mecha¬ 
nization will be quickened. 

Before liberation, old China was a very backward agricultural 
country. In 1949, the food grain output of the whole country 
amounted to only 216.2 billion chin. After liberation when so¬ 
cialist production relations were established and developed in 
the rural areas through agricultural cooperativization and the 
people's communes, agricultural production developed substan¬ 
tially. The output of food grain in 1971 reached 492 billion chin , 
more than twice the amount of 1949. But the level of mecha¬ 
nization in China's agriculture is not high. Agricultural labor 
productivity is still relatively low. Compared with other coun¬ 
tries where the level of agricultural mechanization is relatively 
high, China’s agricultural production is still in a relatively 
backward condition. This condition is not in line with the devel¬ 
opment of China’s industry and other sectors of the national 
economy. Therefore, it is necessary to further realize agricul¬ 
tural mechanization and promote a rapid-cievelopment of agri¬ 
cultural production on the basis of continuously consolidating 
and developing socialist production relations in the rural areas. 



372 Fundamentals of Political Economy 


When machines are used in plowing, sorting, harvesting, and 
transportation, agricultural labor productivity will be raised 
tens and hundreds of times. If he plows by hand, a veteran 
worker can only plow one mou a day. With an ox, a man can 
plow four mou a day. With a medium or large tractor, several 
tens to several hundreds of mou can be plowed in a day, thus 
raising agricultural labor productivity by tens to hundreds of 
times. The labor power thus saved through agricultural mech¬ 
anization can be used to increase production both intensively 
and extensively by raising the per unit area yield and promoting 
the rural development of agriculture, forestry, animal hus¬ 
bandry, sideline production, and fishery. It can also be used to 
support the development needs of other sectors of the national 
economy. 

The realization of agricultural mechanization can also raise 
the capacity to combat natural calamities and change the situa¬ 
tion of depending on the weather for food. China is a country of 
vast area. Some degree of drought and flooding occurs every 
year. With electric drainage and irrigation machines, water can 
be controlled readily. The resulting reduction in damage due to 
possible droughts or floods will guarantee a steady and high 
yield in agricultural production. The poor and lower-middle 
peasants put it well: "The sound of machines in the river brings 
joy to the crops in the field. With no fear of drought and flood¬ 
ing, good harvests and high yields are guaranteed.” 

Under the guidance of Chairman Mao's proletarian revolution¬ 
ary line, and especially after the Great Proletarian Cultural 
Revolution, there has been a rapid development in China’s agri¬ 
cultural mechanization. Comparing 1970 with 1965, the electric¬ 
ity consumption in the rural areas increased by 1.6 times, elec¬ 
tric drainage and irrigation machines more than doubled, the 
ownership of large and medium tractors increased by more than 
70 percent, the ownership of hand-held tractors increased by 
nearly 20 times, and the machine-plowed area represented 
nearly 20 percent of the cultivable area. With the gradual real¬ 
ization of agricultural mechanization in China, the drought con¬ 
trol and drainage capacity of agriculture will continuously 



The Role of Agriculture and Industry 373 


increase. The people’s ability to combat natural calamities will 
continuously be strengthened. And the steady growth of agricul¬ 
tural production will be more assured. From this we can see 
that the further realization of agricultural mechanization on the 
basis of agricultural collectivization is a necessary path for de¬ 
veloping agricultural productivity. 

In the process of gradually realizing agricultural mechaniza¬ 
tion, the material basis of the collective economy will grow 
daily, and the three-level ownership system of the rural peo¬ 
ple's commune will be further consolidated and developed. The 
experience of agricultural mechanization has demonstrated that 
large- and medium-sized agricultural machines can be fully ex¬ 
ploited only if they are owned by the commune and the produc¬ 
tion brigade. Consequently, with the development of agricultural 
mechanization, the scale and role of the collective economy at 
the commune and brigade levels will gradually expand, and the 
superiority of the people’s commune will be further revealed. 
Thus, the poor and lower-middle peasants will love the people’s 
commune all the more and will be all the more resolute in fol¬ 
lowing the socialist road. The poor and lower-middle peasants 
used a vivid language to depict the necessity for agricultural 
mechanization: "The People's commune is full of power. The 
collective economy blooms with a red flower. With agricultural 
mechanization, even a class-twelve typhoon will fail to over¬ 
power." 

I n Agricultur e, Lea rn from Tachai 

It is an inevitable trend in the development of socialist agri¬ 
culture to gradually realize agricultural mechanization on the 
basis of collectivization. But, agricultural mechanization must 
be under the command of revolutionization. Chairman Mao 
teaches us, "Once the correct thought representing the advanced 
class is in the hands of the masses, it becomes a material 
strength to transform society and the world." (7) When the broad 
masses of poor and lower-middle peasants vtfio are the masters 
of socialist agriculture have studied Marxism-Leninism- 



374 Fundamentals of Political Economy 


Mao Tse-tung Thought and have mastered Chairman Mao’s line 
and general and specific policies, they possess overwhelming 
strength and are powerful enough to tame mountains and har¬ 
ness rivers. They can transform unfavorable natural conditions 
into favorable ones, transform low yields into high yields, ad¬ 
vance from a condition of owning no agricultural machines to 
owning various agricultural machines and fully realizing the 
superiority of agricultural mechanization. This is how Tachai 
Production Brigade of Tachai Commune in Hsi-yang hsien , 
Shansi Province, was transformed. 

Tachai Production Brigade is situated in the Taihang 
Mountains. Before agricultural collectivization, it was a poor 
mountainous area with plenty of rocks and little soil. The poor 
and lower-middle peasants of Tachai described it as: "The 
mountain is high, and rocks are plentiful. When you go outside, 
you have to clamber up slopes. There are less than 3.5 mou of 
land for each family. Natural disasters are commonplace." 

When the primary cooperative was started in 1953, the average 
per mou yield of food grain was 250 chin. In the process of de¬ 
veloping from the primary cooperative to the advanced cooper¬ 
ative and then to the people's commune, the Party branch of 
Tachai Production Brigade firmly adhered to the principle of 
putting proletarian politics in command. It issued the slogan of 
"transform the people, transform the land, and transform the 
yield," used Mao Tse-tung Thought to educate the cadres and 
the masses, and carried out a big transformation in agricultural 
production through an ideological revolution among the people. 
The cadres and the masses of Tachai Brigade smashed the sab¬ 
otage of the landlord, the rich peasant, the counterrevolutionary, 
and the bad elements and resisted interference from the revi¬ 
sionist line pushed by the Liu Shao-ch’i and Lin Piao clique. 
Under the guidance of Chairman Mao's great policy of self- 
reliance through arduous struggle, Tachai Brigade engaged in 
capital construction for water control and transformed the 
"three lost fields" in which water, fertilizers, and soil were 
lost because of poor construction into "three retained fields" in 
which water, fertilizers, and soil were retained after the fields 



The Role of Agriculture and Industry 375 


had been leveled and terraced. The average per mou yield of 
food grain in Tachai Brigade was gradually raised from 250 
chin in 1953 to 543 chin in 1958, 802 chin in 1964, and 1,096 
chin in 1967. Simultaneous with the rapid growth of food-grain 
production, Tachai Brigade realized an all-round development 
of agriculture, forestry, animal husbandry, and sideline produc¬ 
tion. In this process of ’’transforming the people, transforming 
the land, and transforming the yield,” the Party branch of Ta¬ 
chai Brigade also led the commune members to use their own 
hands to combine indigenous and foreign technology to substan¬ 
tially advance the mechanization of plowing, cultivating, thresh¬ 
ing, transporting, and processing food grain and fodder and to 
advance on the road of putting mechanization under the command 
of revolution. The heroic attitude of the poor and lower-middle 
peasants to fight Nature and farm for revolution is a powerful 
criticism and repudiation of the reactionary fallacies of Lin 
Piao who slandered the worker-peasant laboring people saying, 
’’All they think about is how to make money, get rice, oil, salt, 
sauce, vinegar, and firewood, and take care of their wives and 
children,” and who championed the Confucian thought that "the 
little people can only be persuaded by self-interest.” 

Tachai Brigade is a model of how to develop socialist agri¬ 
culture according to Chairman Mao's proletarian revolutionary 
line. "In agriculture, learn from Tachai" is a great call from 
Chairman Mao. If only we can firmly adhere to arming the ca¬ 
dres and the masses with the great thought of Mao Tse-tung, 
then, like Tachai Brigade, we will have activism, organizational 
discipline, and the revolutionary spirit of suffering hardship. 

We will certainly be able to overcome unfavorable conditions 
and create favorable conditions to transform drastically the 
outlook of agricultural production. 

Because of the interference and sabotage of Liu Shao-ch'i’s 
revisionist line before the Great Proletarian Cultural Revolu¬ 
tion, Hsi-yang hsie n, where Tachai Brigade is situated, did not 
unfold the mass movement of learning from Tachai. Its agricul¬ 
tural production developed very slowly. The total output of food 
grain in the hsien as a whole hovered around 70 to 80 million 



376 Fundamentals of Political Economy 


chin . The annual maximum sale of food grain to the state was 
only 7 million chin . The Great Proletarian Cultural Revolution 
transformed the outlook of Hsi-yang hsien. Starting from 1967, 
the whole hsien unfolded the mass movement of learning from 
Tachai in a big way. It also resisted the interference and sabo¬ 
tage of Lin Piao's revisionist line. The people of the whole 
hsien fought heaven and earth, transformed mountains and riv¬ 
ers, and greatly transformed the land acreage of Hsi-yang 
hsien. Agricultural production developed rapidly. The output 
of food grain doubled in three years and tripled in five years. 
The total output of food grain in 1971 reached 240 million chin, 
three times as high as the peak output before the Great Prole¬ 
tarian Cultural Revolution. Commodity food grain sold to the 
state reached 80 million chin, an increase of more than ten 
times over the record harvest before the Great Proletarian 
Cultural Revolution. 

The experience of Hsi-yang hsien f s learning from Tachai 
demonstrates that any difficulties in the human world can be 
overcome and any miracle in the human world can be created 
if the innovative power of the masses armed with Mao Tse-tung 
Thought is relied upon. To deeply unfold the mass movement of 
learning from Tachai and to let the Tachai flower bloom all over 
the country will certainly accelerate the development of agricul¬ 
tural production, further consolidate the socialist base in the 
rural areas, and permit agriculture to play a greater role as 
the foundation of the national economy. 

Al l Trade s and Industries Must Su pport 
Agriculture with Their Effo rts 

The development of socialist agriculture must primarily rely 
on the efforts of the cadres and the poor and lower-middle peas¬ 
ants, the staff and workers of the state farms, and other labor¬ 
ing peasants who fight on the agricultural point. But this does 
not mean that the development of socialist agriculture has noth¬ 
ing to do with other trades and industries. Agriculture is the 
foundation of the national economy. Agricultural production 





The Role of Agriculture and Industry 377 


affects the development of the whole socialist national economy. 
If agriculture is not properly developed, other trades and indus¬ 
tries cannot hope to develop either. If agriculture is properly 
developed, everything else will do well too. The development 
of socialist agriculture is related to all trades and industries. 

All trades and industries must put the support of agriculture in 
an important position and actively perform the job of supporting 
agriculture. The industrial sectors must above all regard the 
support of agriculture and the promotion of agricultural mech¬ 
anization as a major task. They must resolutely orient their 
work toward the objective of treating agriculture as the founda¬ 
tion. Small local industries such as iron and steel, machine 
building, chemical fertilizer, and cement must all the more 
firmly adhere to the correct orientation of serving agricultural 
production. 

The support of agriculture by all trades and industries is an 
important characteristic of the socialist economy. In capitalist 
society, industry exploits agriculture, and the urban areas ex¬ 
ploit the rural areas. Therefore, the relationship between the 
industrial capitalist and the laboring peasant is one of class an¬ 
tagonism. In the socialist economy, after the urban and rural 
areas have undergone socialist transformation and on the basis 
of the socialist public ownership system, the antagonism between 
the urban and rural areas and between industry and agriculture 
is eliminated. But there are still two forms of the socialist pub¬ 
lic ownership system. And because the economic, cultural, and 
technological level of the rural areas is still below that of the 
urban areas, there still exist substantial disparities between 
them. The great program of the proletariat to build socialism 
and communism requires that in the process of continually de¬ 
veloping agricultural production and extending social reform 
and technical innovation in agriculture, these essential dispari¬ 
ties be gradually narrowed and finally eliminated. Therefore, 
it is an objective necessity that in developing the socialist econ¬ 
omy all trades and industries lend their support to agriculture 
and to raising the economic, cultural, and N technical level of the 
rural areas. The proletarian party calls on all trades and 



378 Fundamentals of Political Economy 


industries to firmly establish the thought of treating agriculture 
as the foundation of the national economy and to render their 
assistance to developing socialist agriculture from all as¬ 
pects. 

Out of their need to restore capitalism, the bourgeoisie and 
its agents inside the proletarian party not only will not narrow 
the disparities between the urban and the rural areas, but in¬ 
troduce the capitalist method of letting industry exploit agricul¬ 
ture and the urban areas exploit the rural areas. The process 
of restoring capitalism in the Soviet Union is also the process 
of increasing the control and exploitation of the rural areas by 
the bureaucratic monopoly bourgeoisie headed by Brezhnev. 

The revisionist line of "emphasizing industry at the expense of 
agriculture" and "squeezing agriculture to benefit industry" ad¬ 
vocated by the Liu Shao-ch'i clique was also a line that sought 
to widen the disparities between the urban and rural areas and 
between industry and agriculture and finally to restore capital¬ 
ism. 

Among the people, it is not an easy job to firmly establish the 
idea of treating agriculture as the foundation and resolutely 
carry through the policy having all trades and industries sup¬ 
port agriculture. Under the influence of the revisionist line, 
people often develop the idea of upgrading industry and down¬ 
grading agriculture. After agriculture has reaped bumper har¬ 
vests for several years in succession, the idea of treating agri¬ 
culture as the foundation loses ground in people's minds. They 
give lip service to "agriculture, light industry, heavy industry" 
but act according to "heavy industry, light industry, agricul¬ 
ture." The tendency to neglect agriculture in the allocation of 
capital funds and the supply of material goods is obvious. These 
conditions demonstrate that to firmly establish the idea of agri¬ 
culture as the foundation, it is necessary to study seriously the 
Chairman's theories about the interrelations among agriculture 
and light and heavy industry, study seriously the general policy 
of developing the national economy with "agriculture as the 
foundation and industry as the leading factor," and further crit- 



The Role of Agriculture and Industry 379 


icize and repudiate the various reactionary fallacies of modern 
revisionism that look down on agriculture. 

Under the guidance of Chairman Mao's revolutionary line, 
tens of millions of educated youths in China have answered his 
great call that "educated youths must go to the villages and 
receive reeducation from the poor and lower-middle peasants" 
and have gone to the rural areas and mountainous areas to fight 
in the forefront of agricultural production. This is a social rev¬ 
olution that changes the established customs of society and a 
strategic measure for training a large number of successors 
to the proletarian revolutionary enterprise. Confucius, the 
spokesman for the declining slave-owning class, greatly de¬ 
spised agricultural labor. His student Fan Ch'ih asked him how 
to grow crops and vegetables. He scolded him for being "a 
small man." Lin Piao, the faithful disciple of Confucius, com¬ 
pletely inherited this reactionary idea. He maliciously attacked 
the idea of having educated youths go to the rural and moun¬ 
tainous areas as being "equivalent to disguised labor reform." 
All exploitative classes despise both agriculture and the peas¬ 
ants. The hopeless intention of these classes is to ride as long 
as they can on the shoulders of the laboring people and exploit 
them. Chairman Mao thoroughly criticized and repudiated the 
reactionary ideas of people like Confucius. He pointed out that 
"it is correct in political orientation and work method" (8) for 
the revolutionary youth to study revolutionary theories, partici¬ 
pate in production, and join the worker-peasant masses. The 
rural areas are wide open. It is extremely important for the 
maturation of the educated youths themselves, the construction 
of a new socialist countryside, the criticism of Lin Piao and 
Confucius, and the narrowing of the essential disparities between 
the worker and the peasant and between mental and physical la¬ 
bor that the educated youths go to the rural areas to accept re¬ 
education from the poor and lower-middle peasants, to partici¬ 
pate in class struggle, production struggle, and scientific exper¬ 
iments in the rural areas, and to be exposed to various tests 
and experiences. 



380 Fundamentals of Political Economy 


I ndustry I s t he Leading Factor in 
the Socialist Economy 

Fully Exploit the Role of Industry 
as the Le ading Factor 

Agriculture is the foundation of the national economy. Indus¬ 
try is the leading factor of the national economy. Industry is 
not only a sector which produces the means of livelihood, but is 
also a sector which manufactures the means of production. The 
improvement of the means of production plays a significant role 
in the development of social production. From the historical 
aspect, the evolution from stone implements to metal tools to 
various machines represents not only milestones but also bench¬ 
marks for the various economic epochs of human society. That 
industry is the leading factor of the national economy means 
that the development of industry will certainly bring forth ad¬ 
vanced tools for the various sectors of the national economy, 
promote technical innovations in the national economy, and 
consequently increase labor productivity and social produc¬ 
tion. 

Industry is divided into light industry and heavy industry. 
Light industry is primarily concerned with producing the means 
of livelihood. Heavy industry is primarily concerned with pro¬ 
ducing capital goods and manufacturing the means of production 
[tools]. To play the role of the leading factor in the national 
economy, it is necessary to give full scope to heavy industry 
which produces capital goods and manufactures the means of 
production. In socialist society, the role of heavy industry as 
the leading factor in the national economy is described as fol¬ 
lows: to provide various modem agricultural machines, motive 
power, chemical fertilizers, pesticides, and other means of pro¬ 
duction for agriculture; to produce various light industrial ma¬ 
chines and light industrial raw materials and promote technical 
innovation and labor productivity in light industry so that light 
industry can provide ever-richer and more varied industrial 
products for daily use; and to provide modern equipment for 



The Role of Agriculture and Industry 381 


transportation, construction, and national defense industries in 
order to promote technical innovation and development in these 
fields. From these, we can see that the role of heavy industry 
as the leading factor is not only manifested as the necessary 
condition for realizing agricultural mechanization, but is also 
manifested as a necessary condition for realizing technical in¬ 
novation for the whole national economy and is a necessary con¬ 
dition for consolidating national defense, guaranteeing national 
security, strengthening proletarian dictatorship, and supporting 
world revolution. Just as Chairman Mao pointed out, "Without 
industry, there will be no strong national defense, no welfare 
for the people, and no rich and strong country." (9) The role of 
industry as the leading factor is determined by its important 
role in the above-mentioned aspects. 

That the role of industry as the leading factor is primarily 
realized by heavy industry does not mean that light industry is 
not important. Although light industry does not produce produc¬ 
tion tools, it is still an important sector of the socialist national 
economy. It is basically a sector for the production of the means 
of livelihood. Like agriculture, it is an indispensable sector for 
reproduction of labor power. Light industry is a necessary com¬ 
plement to agriculture. It processes agricultural and sideline 
products, produces various necessary means of livelihood for 
the laboring people of the urban and rural areas, and assists 
agriculture to play better the role of the foundation in the na¬ 
tional economy. Compared with heavy industry, light industry 
is characterized by small investment and quick returns. Light 
industry provides capital accumulation for the state and is an 
important source of capital funds for building heavy industry. 
Chairman Mao paid special attention to the position and role of 
light industry in the national economy. He pointed out, ,r When 
agriculture and light industry are developed, heavy industry 
will develop faster with the availability of markets and capital 
funds.” (10) Chairman Mao clearly pointed out that the develop¬ 
ment of heavy industry depends not only on agriculture, but also 
on light industry. He pointed out the important role of light in¬ 
dustry which people easily forget. 



382 Fundamentals of Political Economy 


Gradually Realize Socialist Industrialization 


The important role of industry in the national economy objec¬ 
tively requires the socialist country to pay attention to the de¬ 
velopment of socialist industry. For countries in which indus¬ 
trial development is relatively backward, an important task fac¬ 
ing the proletariat after it seizes political power is rapidly to 
develop modern industry, realize socialist industrialization, 
and build the originally economically backward country into a 
strong socialist country with modern agriculture, modern in¬ 
dustry, modern national defense, and modern science and tech¬ 
nology. 

In addition to more fully bringing into play the role of indus¬ 
try as the leading factor and thus guaranteeing the independence 
of the national economy and consolidating national defense, the 
realization of socialist industrialization has a more far-reachin| 
significance. The gradual realization of socialist industrializa¬ 
tion will certainly increase the proportion of the sector of the 
economy under state ownership and strengthen the leading ca¬ 
pacity of the state economy in the whole national economy. The 
development of socialist industrialization will accelerate the 
development of industry in areas where industry was formerly 
backward and change the irrational distribution of industries. 

At the same time, the ranks of the working class will expand, 
which will be favorable to strengthening the leadership of the 
working class over the whole country. The gradual realization 
of socialist industrialization will also certainly accelerate agri¬ 
cultural mechanization and raise industry’s capacity to support 
agriculture, thus creating favorable conditions for gradually 
narrowing the disparities between the urban and rural areas and 
between the worker and the peasant. It is precisely because of 
the significance of the realization of socialist industrialization 
that Chairman Mao, in personally directing the formulation of 
the Party's General Line in the 1953 transition period, stipulated 
that gradual socialist industrialization is an important task 
which the whole Party and the whole people should strive to 
achieve. 



The Role of Agriculture and Industry 383 


Old China was a semicolonial and semifeudal country. Under 
the oppression of imperialism, feudalism, and bureaucratic 
capitalism, the level of production was extremely backward. 
There were very few modern industries. The few modern in¬ 
dustries that existed consisted primarily of light industry and 
textile industry. When the country was liberated in 1949, the 
annual output of steel was only 158,000 tons. There was nothing 
to speak of in many important industrial sectors. 

Faced with this ’’poor and blank” condition inherited from old 
China, to rapidly realize socialist industrialization was a very 
pressing problem for the Chinese proletariat who wielded polit¬ 
ical power. In the past more than twenty years under the bril¬ 
liant leadership of Chairman Mao, significant measures have 
been taken to accelerate the realization of socialist industrial¬ 
ization. 

To realize socialist industrialization in China, it is necessary 
to build a complete socialist industrial system which combines 
large, medium, and small enterprises, which is distributed geo¬ 
graphically in a comparatively rational manner, and in which 
the iron and steel industry and the machine-building industry 
are the center. This national industrial system is built on the 
foundation of existing industrial systems in various coordinated 
regions and provinces. Once modern industrial systems that 
are complete and relatively independent but which all vary ac¬ 
cording to local conditions have been established in a planned 
fashion and step by step in every coordinated region and within 
the framework of many provinces, the formation of the national 
industrial system will take place very quickly. 

How to realize socialist industrialization ? Chairman Mao 
pointed out to us that ”the problem of what path to follow in in¬ 
dustrialization refers primarily to the interrelation among 
heavy industry, light industry, and agriculture.” ( 11 ) To realize 
socialist industrialization, it is of course necessary to give pri¬ 
ority to developing heavy industry. But, giving priority to de¬ 
veloping heavy industry does not mean that agriculture and light 
industry can be ignored. Chairman Mao pointed out: "China's 
economic construction is centered around heavy industry. This 



384 Fundamentals of Political Economy 


point must be affirmed. But at the same time we must pay full 
attention to developing agriculture and light industry.” (12) 
Based on the interrelations among agriculture, light industry, 
and heavy industry, Chairman Mao formulated a revolutionary 
line to realize socialist industrialization with greater, faster, 
and better results at lower costs, namely, to develop heavy in¬ 
dustry by developing more light industry and agriculture. 
Through this method, agriculture and light industry have devel¬ 
oped. They not only can provide ever-greater amounts of the 
means of livelihood and improve people's lives, but can also 
solve the problem of capital accumulation and markets for 
heavy industry in order to make the development of heavy in¬ 
dustry more stable and reliable. From a long-range viewpoint, 
this method will lead to greater and better development of 
heavy industry. 

In opposition to Chairman Mao's revolutionary line, there 
was the revisionist line advocated by the Liu Shao-ch’i and Lin 
Piao clique which had fewer, slower, and poorer results at 
higher costs, namely, developing heavy industry at the expense 
of agriculture and light industry. Because it neglects the devel¬ 
opment of agriculture and light industry, this line of lopsidedly 
developing heavy industry does not meet the requirements of 
the peasants to strengthen the collective economy; it does not 
take care of the livelihood of the broad masses and will cer¬ 
tainly result in discontent among the people and the improper 
development of heavy industry. 

Under the guidance of Chairman Mao’s revolutionary line, 
the revisionist line of Liu Shao-ch’i and Lin Piao has been crit¬ 
icized and repudiated, the interrelations among agriculture, 
light industry, and heavy industry have been correctly handled, 
brilliant results have been achieved in China's socialist indus¬ 
trialization, and the rudiments of an independent and modern 
industrial system have been developed. 

In Indust ry, Learn from Tach'ing 

The process of socialist industrialization is a process of in¬ 
tense struggle between two classes, two roads, and two lines. 



The Role of Agriculture and Industry 385 


In the process of leading China to realize socialist industrial¬ 
ization, Chairman Mao advocated, in addition to scientifically 
pointing out a road for socialist industrialization based on the 
interrelations among agriculture, light industry, and heavy in¬ 
dustry, important policies such as independence, self-reliance, 
arduous struggle, and ’’smash foreign conventions and follow 
our own road to develop industry.” It was a pointed criticism 
and repudiation of the ’’slavish submission to foreign conven¬ 
tions” and the ’’snail’s pace” advocated by the Liu Shao-ch’i and 
Lin Piao clique. Following Chairman Mao's teaching, China's 
working class displayed the revolutionary spirit of daring to 
think, daring to speak up, and daring to act and gave impetus to 
the rapid development of China's industrial construction. The 
Tach’ing Oil Field is an industrial model for building socialism 
with greater, faster, and better results at lower costs. In the 
struggle between the two lines, it firmly adhered to Chairman 
Mao’s proletarian revolutionary line. 

The new Tach’ing Oil Field was formerly a barren plain. When 
several hundreds of thousands of staff and workers arrived there 
in 1960 to construct the oil field, it was ”a blue sky above and a 
grass plain below.” The weather was cold and the ground was 
frozen. There were no houses, no beds, no cooking equipment. 
Production conditions were also very difficult. Several dozens 
giant drilling machines were soon set up on the grass plain. But 
the equipment was incomplete; there were not enough trucks or 
cranes and no highways. Roads were muddy. Water and electric¬ 
ity supplies were grossly inadequate. Under such difficult con¬ 
ditions, the heroic Tach’ing workers firmly adhered to putting 
proletarian politics in command and repeatedly studied Chair¬ 
man Mao’s works, especially ”On Practice” and "On Contradic¬ 
tions." They armed their minds with Marxism-Leninism-Mao Tse- 
tung Thought, fought heaven and earth, fought class enemies, and 
displayed the revolutionary spirit of self-reliance and arduous 
struggle. In just a little over three years, a big, first-class oil 
field had been established in China with high speed and high qual¬ 
ity. China has been basically self-sufficient in oil products 
since 1963. The Tach’ing workers also conducted a large amount 



386 Fundamentals of Political Economy 


of scientific research and solved several important technical 
problems concerning world oil field exploitation. Following 
Chairman Mao's teaching concerning how to run an enterprise 
with diligence and thrift, the total state investment was recov¬ 
ered in 1963. On the eve of "May Day" in 1974, the capital it 
had accumulated for the state amounted to eleven times the 
state investment, achieving greater, faster, and better results 
at lower costs. Even more important, the Tach’ing Oil Field 
has trained a worker corps that has class consciousness, drive, 
a good style of work, organization, and discipline and which can 
endure hardship and fight hard battles. It is because of this 
revolutionized corps that the Tach'ing Oil Field develops con¬ 
tinuously and rapidly and embodies a great victory for Chair¬ 
man Mao's proletarian revolutionary line. 

The Tach’ing Oil Field is a red banner on China’s socialist 
industrial front. "In industry, learn from Tach’ing" is Chair¬ 
man Mao’s great call. There is a basic similarity between the 
Tach'ing Oil Field and the Tachai Brigade. Comrade Chou En- 
lai pointed out in his Political Report to the Tenth National Party 
Congress: "The basic experience of our socialist construction 
over the past twenty years is to rely on the masses. To learn 
from Tach'ing in industry and Tachai in agriculture, it is nec¬ 
essary to adhere firmly to putting proletarian politics in com¬ 
mand, launch mass movements in a big way, and fully exploit 
the enthusiasm, wisdom, and creativity of the broad masses." 
The experience of Tach’ing demonstrated that to educate people 
with Marxism-Leninism-Mao Tse-tung Thought and to build 
a workers* corps is the most basic thing in socialist enter¬ 
prise construction. With such a corps of iron and steel armed 
with Mao Tse-tung Thought, there is no fear of hardship or dif¬ 
ficulties. The harder it is, the further the corps will advance, 
overcoming all difficulties in order to build socialist industries 
with greater, faster, and better results at lower costs. People 
like Lin Piao slandered the working class as being merely in¬ 
terested in "livelihood." The Tach’ing experience is a slap in 
their faces. In building socialist industry, whether the political 
and ideological education of the staff and workers is given 



The Role of Agriculture and Industry 387 


priority, whether we trust the masses, whether we dare to mo¬ 
bilize the masses, whether we insist on following the mass line, 
and whether the road of self-reliance and arduous struggle is 
followed are important indicators of whether the banner of "In 
industry, learn from Tach’ing" is truly upheld and whether 
Chairman Mao’s revolutionary line has been truly executed. 

Chairman Mao’s call for "In industry, learn from Tach'ing" 
indicated the direction for China's industrial development. It 
greatly aroused the working class of China to be self-reliant, 
strive hard, and rapidly transform the outlook of China’s indus¬ 
try. The penetrating unfolding of the mass movement to "Learn 
from Tach'ing in industry" will certainly accelerate the pace of 
China’s socialist industrialization and build China into a great 
socialist country with modem agriculture, modem industry, 
modern national defense, and modem science and technology. 

Th e Nation al Ec on omic Plan Must Fol low the Order 
of Agriculture, Light Industry, and Heavy Industry 


Promo te the Ra pid Development of the National 
Econo my Foll owing the Order of Agricu lture, 

Light Industry, and Heavy Industry 

That agriculture is the foundation and industry is the leading 
factor of the national economy is an objective necessity. The 
general policy of "agriculture as the foundation, industry as the 
leading factor" formulated by Chairman Mao to develop the na¬ 
tional economy correctly reflects this necessity and is a model 
for developing the socialist national economy. 

Under the guidance of the General Line for building socialism 
and the general policy for developing the national economy, China’s 
national economic plan is arranged in the order of agriculture, 
light industry, and heavy industry which Chairman Mao sug¬ 
gested. That is to say, in arranging the national economic plan, 
we must start from agriculture and place agriculture in the pri¬ 
mary position. Whether it is in the allocation of capital funds 
or the supply of material goods, the needs of agriculture cannot 



388 Fundamentals of Political Economy 


be neglected. At the same time, we must also take care that the 
development of heavy industry and other sectors of the national 
economy cannot exceed the amount of food grain, raw materials, 
capital funds, and labor force that can be provided by agricul¬ 
ture. The development of heavy industry must be based on the 
foundation of developing agriculture and light industry. In China, 
as a result of the implementation of this policy, the relations 
between industry and agriculture are relatively harmonious. 
Agricultural production and industrial production steadily in¬ 
crease. The market is thriving, and prices are stable. A pros¬ 
perous and lively scene prevails over industrial and agricul¬ 
tural production. Historical experience demonstrates that the 
development of the national economy in the socialist country 
must take agriculture as the foundation and industry as the lead¬ 
ing factor and correctly handle the relations among agriculture, 
light industry, and heavy industry. This is an indisputable truth. 
Unlike China, Soviet revisionist social imperialism exploits and 
oppresses its laboring people at home and engages in aggres¬ 
sion and expansion abroad. It frantically militarizes its national 
economy, develops the armament industry at all costs, destroys 
the development relations among agriculture, light industry, and 
heavy industry, and leads its national economy into severe cri¬ 
ses. These measures of the Brezhnev clique that wants "more 
guns at the expense of butter" lead to severe inflation, commod¬ 
ity shortages in the market, and short supplies. The laboring 
people are impoverished. 

The Order of Agriculture, Ligh t Industry, and 
Heavy Industry Will Certainly P romo te the 
Consolidation of the Worker-Peasant Alliance 

The problem of the development relations among agriculture, 
light industry, and heavy industry in the socialist national econ¬ 
omy is not only a question of the proportional relations among 
these national production sectors; it is also a question of the 
interrelations between the workers and the peasants and a ques¬ 
tion of the worker-peasant alliance. 






The Role of Agriculture and Industry 389 


Under the socialist system, the basic interests of the worker 
and the peasant are identical. Under the leadership of the work¬ 
ing class, the mutually supporting and promoting worker- 
peasant alliance is established for a common struggle to build 
socialism and realize communism. But certain disparities still 
exist between the urban and rural areas and between the worker 
and the peasant with respect to economics, culture, technology, 
and material livelihood. These disparities are the remnants of 
the old society. To allow these disparities to exist for a long 
time, or even to expand, and not to create conditions to narrow 
or eliminate the disparities is detrimental to the consolidation 
of the worker-peasant alliance. 

In his analysis of the relations between the leading class and 
the class which is led, Chairman Mao pointed out: "The leading 
class and Party, in order to exercise leadership over the class, 
stratum, political party or people’s organization to be led, must 
possess two characteristics: (A) lead the one which is led (the 
ally) to fight a determined battle against the common enemy and 
win and (B) provide material welfare to the one which is led; at 
least, do not hurt their interests and give them political edu¬ 
cation." ( 13) After the working class has seized political power, 
led the peasants to overthrow the landlord class, and realized 
land reform and agricultural collectivization, it is still neces¬ 
sary to lead the peasants to fight a determined battle against the 
class enemy in the rural areas, conduct socialist education to 
help them further realize agricultural mechanization on the ba¬ 
sis of collectivization, raise their material and cultural living 
standards gradually on the basis of production development, and 
lead them to follow resolutely the socialist road. This way, the 
disparities between the urban and rural areas can be narrowed 
and the worker-peasant alliance can be further consolidated. 

Therefore, the arrangement of the national economic plan ac¬ 
cording to the order of agriculture, light industry, and heavy in¬ 
dustry is basically an important aspect in the correct handling 
of the relations between the worker and the peasant. The es¬ 
sence of this problem is the issue of consolidating the leader¬ 
ship of the working class, consolidating the alliance between the 



390 Fundamentals of Political Economy 


worker and the peasant, having the working class struggle with 
the bourgeoisie for the allegiance of the peasants, and a new is¬ 
sue of class struggle under the socialist system. Chairman 
Mao's theory concerning the interrelations among agriculture, 
light industry, and heavy industry, the general policy of devel¬ 
oping the national economy with "agriculture as the foundation 
and industry as the leading factor," and the arrangement of the 
national economic plan according to the order of agriculture, 
light industry, and heavy industry indicated the road to solving 
these problems. 

Major Study References 


Marx, Capital , Vol. 3, Chapter 37. 

Chairman Mao, "On the Correct Handling of Contradictions 
among the People," Sections 3 and 12. 

Review Problems 


1. Why do we say that agriculture is the foundation of the na¬ 
tional economy ? How can the job of supporting agriculture be 
done well ? 

2. Why do we say industry is the leading factor of the national 
economy ? Why must attention be paid to the development of ag¬ 
riculture and light industry while developing heavy industry ? 

3. What is the immense significance of correctly handling the 
relations among agriculture, light industry, and heavy industry? 

Notes 


1) Marx, " 'Money': One of the 1857-1858 Manuscripts on 
Economics," quoted from Marx, Engels, Lenin, and Stalin on 
Commun ist Society , Jen-min ch'u-pan-she, 1958, p. 67. 

— 2) Marx, Capital , Vol. 3, Jen-min ch'u-pan-she, 1966, p. 918. 

3) "On the Correct Handling of Contradictions among the 
People," Selected Readings from the Works of Mao Tse-tung , 
(Type A), Jen-min ch'u-pan-she, 1965, p. 362. 




The Role of Agriculture and Industry 391 


4) Ibid., p. 362. 

5) "On Coalition Government," Selected Works of Mao Tse- 
tung , Vol. 3, Jen-min ch'u-pan-she, 1968, p. 978. 

6) "On Agricultural Cooperativization," Selected Readings 
f rom the Works of Mao Tse-tung , (Type A), Jen-min ch’u-pan- 
she, 1965, p. 314. 

7) "Where Does People’s Correct Thought Come from ?" 
Selected R ead ings from the Works of Mao Tse-tung , Jen-min 
ch'u-pan-she, 1965, p. 383. 

8) "The Orientation of the Youth Movement," Select ed W orks 
of Mao Tse-tung , Vol. 2, Jen-min ch’u-pan-she, 1968, pp. 532- 
33. 

9) "On Coalition Government," Selected Works of Mao Tse- 
tung, Vol. 3, Jen-min ch'u-pan-she, 1968, p. 981. 

10) "On the Correct Handling of Contradictions among the 
People," Selected Readings from the Works of Mao Tse-tung , 
(Type A), Jen-min ch’u-pan-she, 1965, p. 362. 

11) Ibid., p. 362. 

12) Ibid., p. 362. 

13) "On Some Important Problems of the Party's Present 
Policy," Selected Works of Mao T se-tung , Vol. 4, Jen-min 
ch'u-pan-she, 1968, p. 1168. 




18 

Frugality Is an Important Principle 
in the Socialist Economy 


Practice Frugality and Economic Accounting* 


The socialist production process is one of planned allocation 
of labor time and striving to economize on labor time. To prac¬ 
tice frugality and economic accounting in all enterprises and in 
managing the national economy is the essential condition for 
building socialism with greater, faster, and better results at 
lower costs. 


Frugality Is a Necessity in Socialist 
Economic Development 


The Significance of Frugality to 
Socialist Economic Development 


What frugality means here is the economizing of manpower, 
materials, and funds. Economizing manpower means to save 
live labor; economizing materials means to save embodied la¬ 
bor; and economizing funds means to save live and embodied la¬ 
bor manifested in currency circulation. Therefore, all frugality 
is in fact the economizing of live and embodied labor, or the 
economizing of labor time. 


*Chieh-yueh shih she-hui-chu-i ching-chi ti chung-yao yuan- 
tse — li-hsing chieh-yueh ho ching-chi ho-suan-chih. 


392 



The Socialist Principle of Frugality 393 


In socialist society, saving labor time assumes an immense 
significance. Marx pointed out: "All saving is ultimately the 
saving of time. Every person should rationally allocate his own 
time in order to gain necessary knowledge or to satisfy the var¬ 
ious requirements governing his activities. Similarly, society 
should also allocate its time in order to achieve production that 
satisfies its total requirements. Therefore, the saving of time 
and the planned allocation of labor time in various production 
sectors become a primary economic law of collective produc¬ 
tion. This is even a very advanced law." (1) 

The goal of socialist production is to satisfy the needs of the 
state and its people. Frugality in labor time and planned allo¬ 
cation of labor time over the whole society in order to produce 
the maximum possible amount of use value with the minimum 
amount of labor expenditure is a basic path to guaranteeing to 
the greatest extent the satisfaction of the ever-increasing needs 
of the state and its people. It is also in line with the objective 
requirement of the basic economic law of socialism. To violate 
the law of frugality is to violate the basic requirement of social¬ 
ist economic development and to violate the basic interests of 
the proletariat and the laboring people. Therefore, whether fru¬ 
gality is enforced is primarily an issue of whether the objective 
law of the socialist economy is accepted and an issue of whether 
the basic interests of the proletariat and the laboring people are 
valued. 

To practice frugality is an important way to increase accu¬ 
mulation through self-reliance in the socialist country. To en¬ 
gage in large-scale economic construction, the socialist coun¬ 
try requires a large amount of capital funds. Where do the funds 
come from? Unlike capital imperialism and social imperialism, 
the socialist country cannot exploit its own people, engage in 
external aggression and plundering, demand war damages, or 
sell national resources to develop its economy. The socialist coun¬ 
try can only rely on the diligent labor of its whole laboring people 
and internal frugality for accumulation. On the one hand, the pro¬ 
duction unit saves as much manpower, materials, and funds as pos¬ 
sible, rationally allocates funds, and continuously expands the 



394 Fundamentals of Political Economy 


scale of production. On the other hand, nonproduction units 
such as state organs, military units, schools, and people’s or¬ 
ganizations must economize and eliminate waste in order to 
minimize the share of nonproduction expenditure in the state 
budget. This way, a large amount of capital funds can be accu¬ 
mulated for economic construction. The socialist country must 
practice frugality and oppose waste in order to accelerate so¬ 
cialist construction and better satisfy the ever-increasing needs 
of the state and the people. 

To practice frugality is especially important to China’s so¬ 
cialist construction. China is a big country but is also an eco¬ 
nomically backward and poor country, a developing country. 
Chairman Mao pointed out: ”We must engage in large-scale con¬ 
struction. But China is still a very poor country. This is a con¬ 
tradiction. To practice frugality totally and steadily is one of 
the methods that will resolve this contradiction." (2) There¬ 
fore, Chairman Mao called upon the whole people: "To run fac¬ 
tories with diligence and economy, to run shops with diligence 
and thrift, to run all state enterprises and cooperative enter¬ 
prises with diligence and economy, and to run all other enter¬ 
prises with diligence and thrift. The principle of diligence and 
economy must be applied to everything. This, then, is the prin¬ 
ciple of frugality." (3) The broad workers and poor and lower- 
middle peasants fighting at the forefront of production pay close 
attention to Chairman Mao’s instructions. They understand the 
major significance of frugality. The laboring masses put it 
nicely, "Diligence without economy means pure waste of effort." 
Only through diligence and thrift can the laboring masses cre¬ 
ate wealth and play the greatest possible role and can China 
soon be developed into a big and strong socialist country. 

To practice frugality is also necessary if a socialist country 
is to discharge its obligations related to internationalism. Only 
by saving more can we contribute more to world revolution. 

Chairman Mao pointed out: "Our 600 million people must all 
increase production, practice frugality, and oppose ostentatious 
display and waste. This is not only economically significant, 
but also politically significant." (4) Diligence and frugality have 
always been the virtue of the proletariat and the laboring peo- 



The Socialist Principle of Frugality 395 


pie. Under the guidance of Chairman Mao's revolutionary line, 
the broad masses of China practice diligence and frugality. It 
has developed into a common habit. Ostentatious display and 
waste are the poison of the bourgeoisie and all exploitative 
classes. Like their master Confucius, the Liu Shao-ch'i and 
Lin Piao clique were all people who "never worked with [their] 
four limbs and [whoj could not distinguish the five cereals." 
Extravagance and waste are the innate nature of the exploitative 
class. They hated the policy of "building the country with dili¬ 
gence and economy" formulated by Chairman Mao. In capital 
construction work, they went after "the big, the foreign, and the 
glamorous "projects. In resource management, they resorted 
to what was nominally known as "generous budget but tight 
expenditure." In fact, it was "generous budget and generous 
expenditure." In operation and management, they even clam¬ 
ored that "money will not escape abroad even if accounts are not 
reckoned for three years." Their criminal intent was to cor¬ 
rode those people among the revolutionary ranks who were ir¬ 
resolute, waste national resources, undermine socialism, sabo¬ 
tage proletarian dictatorship, and restore capitalism. There¬ 
fore, to practice frugality and oppose waste will not only accel¬ 
erate socialist construction, but will also represent a powerful 
political struggle against people like Liu Shao-ch'i and Lin Piao. 
It is also a thorough criticism and repudiation of traditional 
concepts and established influence. We must consciously resist 
the corrosion and attacks of bourgeois ideology and extend the 
glorious tradition of the proletariat to establish new enterprises 
with ardor and to practice diligence and economy. "We must 
make all youths realize that our country is still very poor and 
that it is not possible to fundamentally change this condition in 
a short time. We must rely on the youth and the whole people 
to unite and struggle during several decades and create a rich 
and strong country with our own hands." (5) 

The Socialist System Opens a 
Broad Avenue to Frugality 

In socialist society, there is not only a need for practicing fru - 
gality, but also a possibility for rationally and widely achieving 




396 Fundamentals of Political Economy 


frugality with respect to live and embodied labor on various 
battlefronts and in each individual sector of socialist produc¬ 
tion. This is chiefly because the laboring people in socialist 
society have become their own masters. The ultimate purpose 
of saving as much manpower, material resources, and funds as 
possible in order to provide more accumulation for the state 
and the collective and to better expand reproduction is to serve 
the interests of the proletariat and the laboring people. There¬ 
fore, practicing frugality is a conscious objective of the broad 
masses of laboring people. Once the socialist activism of the 
masses has been mobilized, all methods for frugality are em¬ 
ployed: Warehouses and storehouses are inventoried to tap po¬ 
tential material resources; technical innovations are made in a 
big way to tap the potential of unused equipment; labor organi¬ 
zation and methods of operation are improved to tap labor po¬ 
tential; and comprehensive utilization is unfolded to turn "waste" 
into valuable items and transform "the useless” into the useful. 
For example, the main plant of Northeast Pharmaceuticals mo¬ 
bilized the masses to unfold comprehensive utilization. The 
broad laboring masses and technicians all taxed their brains to 
find ways to use "solid waste," "fluid waste," and "gaseous 
waste." As a result, several tens of new products were added. 
The main distillery in Peking formerly produced only liquor. 
After unfolding a mass movement to increase production and 
practice economy, several tens of important products were pro¬ 
duced from the "three wastes" of the plant. It developed a com¬ 
prehensive enterprise, turning out a great variety of products. 
The broad laboring masses are concerned with frugality and 
practice it in thousands of ways. This is not possible in a cap¬ 
italist society. Under capitalism, the capitalist practices fru¬ 
gality in his own enterprise. The purpose is to minimize costs 
and extract maximum surplus value. The essence of frugality 
is to increase the exploitation of hired labor. Marx pointed out: 
"Capitalist production economizes the labor that is realized and 
embodied in commodities. But, capitalism is more wasteful of 
man and live labor than any other production method. It not only 
wastes blood and flesh, but also mind and brain.” (6) The working 



The Socialist Principle of Frugality 397 


masses are extremely resentful of the so-called frugality prac¬ 
ticed by the capitalist and will resolutely resist and rebel 
against it. 

Under the conditions of socialist public ownership, the law of 
frugality not only plays a role within various enterprises; more 
importantly, it plays a role in the whole national economy. The 
socialist economy is a planned economy. "The social and 
planned allocation of labor time regulates the proper proportion 
among various labor functions and various needs." (7) The so¬ 
cialist country can, through the national economic plan, ratio¬ 
nally use manpower, material resources, and funds, centrally 
organize production and circulation, unfold socialist cooperation 
over the whole country, and combine the frugality of individual 
enterprises with the frugality of the whole society. Under cap¬ 
italism, because of competition among enterprises and chaotic 
production, it is basically not possible to practice frugality in 
a systematic manner throughout the whole society. This is es¬ 
pecially so because of the serious waste of manpower, material 
resources, and funds connected with the periodic occurrence of 
business cycles. Marx pointed out: "The capitalist production 
method forces individual enterprises to practice frugality. But 
its chaotic competitive system results in substantial waste in 
social means of production and labor power." (8) 

Frugality and waste constitute a unity of opposites. The pro¬ 
cess of practicing frugality must inevitably be the process of 
opposing waste. To practice frugality, it is first necessary to 
strengthen the masses’ and cadres' education concerning ideol¬ 
ogy and the political line, continuously unfold the struggle 
against waste, and establish the idea of building the country 
with diligence and economy and arduous struggle. The Party’s 
ideological and political work is the basic guarantee that the 
consciousness of the masses and the cadres to practice frugal¬ 
ity will be raised and the policy of running enterprises with dil¬ 
igence and economy will be carried out. To combine ideological 
and political work with meticulous economic work, a rational 
system must be established. To strengthen economic accounting 
in the national economy and in various enterprises and to run 



398 Fundamentals of Political Economy 


the enterprises on the basis of economic accounting is a very 
important system. 

Economic Accounting Is an Important Means to 
Develop the Socia list Eco nomy with Greater , 

Faster, and Bett er Results a t Lower Costs 

Use Economic Accounting to Realize Greater, 

Faster, and Better Results at Lower Costs 


Economic accounting is the analysis of economic activities 
through bookkeeping. In the production struggle, people learned 
a long time ago the importance of economic accounting. In the 
primitive commune of India there was a bookkeeper to record 
agricultural accounts and all events connected with them. (9) 
Marx borrowed the story of Robinson Crusoe, popular among 
bourgeois economists, to explain the necessity of bookkeeping 
in the production process. Marx pointed out: For Robinson, who 
lived on an isolated island, "however simple his life, he had to 
satisfy his various needs. As a result, he had to engage in a 
variety of useful labor, such as making tools, furniture, raising 
goats, catching fish, and hunting animals." "He had to force 
himself to precisely allocate his time for various activities." 
"His accounts recorded various things that he possessed, vari¬ 
ous activities required to produce these things, and finally the 
average labor time expended to make these quantities of prod¬ 
ucts." (10 ) The more social the production process becomes,the 
greater the necessity for economic accounting. "Bookkeeping 
is more necessary to capitalist production than to the decen¬ 
tralized production of handicraftsmen and peasants. It is more 
necessary for production under public ownership than for capi¬ 
talist production." ( 11 ) 

Under different social systems, the content, format, and so¬ 
cial consequences of economic accounting are different. In cap¬ 
italist society, the capitalist uses economic accounting to ex¬ 
tract the greatest possible amount of surplus value with the 



The Socialist Principle of Frugality 399 


smallest possible amount of capital. The stricter this economic 
accounting, the more capital is saved, the more cruel is the 
exploitation of hired labor, and the poorer the laboring people 
become. In socialist society, economic accounting no longer 
reflects capitalist production relations. Rather, it reflects so¬ 
cialist production relations. Through economic accounting, the 
proletariat and the laboring people consciously employ the law 
of saving labor time to develop socialist production with greater, 
faster, and better results at lower costs and to better satisfy 
the needs of the state and the people. 

Greater, faster, and better results at lower costs are impor¬ 
tant characteristics of socialist production. Socialist economic 
accounting is an important means to realize greater, faster, and 
better results at lower costs. Looking at it from the whole na¬ 
tional economy, greater, faster, and better results at lower 
costs are inseparable. In production, if frugality is practiced 
to reduce consumption of raw materials, fuel, labor, and costs, 
the same amount of manpower, material resources, and funds 
can produce more products. At the same time, meticulous cal¬ 
culation, diligence and economy, the rational choice of raw ma¬ 
terials, and the substitution of cheaper and better raw materials 
for more expensive and poorer quality raw materials can also 
lead to an increase in production by raising the quality of prod¬ 
ucts and improving the durability of products. The manpower, 
material resources, and funds thus saved can be used to de¬ 
velop production of other items to accelerate socialist con¬ 
struction. 

The bourgeoisie tries its best to extract the greatest possible 
amount of surplus value by using the smallest amount of capital. 
Soviet revisionism regards the pursuit of profit as the highest 
principle of economic accounting. Profits in the enterprises of 
Soviet revisionist state monopoly capitalism are a transforma¬ 
tion of surplus value. Economic accounting in capital imperial¬ 
ism and social imperialism is the economic accounting of the 
exploitative class. It is diametrically opposed to socialist eco¬ 
nomic accounting. 



400 Fundamentals of Political Economy 


The Laboring M asses Are the 
Masters of Economi c Acc ounting 

The position of the laboring masses in socialist economic ac¬ 
counting and capitalist economic accounting is entirely differ¬ 
ent. Because economic accounting in the capitalist enterprise 
serves the bourgeoisie but is fundamentally opposed to the in¬ 
terests of the laboring people, economic accounting is the busi¬ 
ness of only a few experts employed by the bourgeoisie. Social¬ 
ist economic accounting serves the interests of the laboring 
people and is in line with their basic interests. Therefore, eco¬ 
nomic accounting in the socialist enterprise is not merely the 
work of experts, but should and can become an economic activ¬ 
ity which has the conscious participation of the laboring masses. 

Economic accounting in China’s socialist enterprise combines 
the laboring masses and the experts. China’s experience demon¬ 
strates that to do a good job in economic accounting, the masses 
must participate. Economic accounting by experts must be 
based on mass accounting. Because the broad laboring masses 
have rich practical experience gained from fighting a long battle 
on the production forefront, they are familiar with their own 
production conditions. They know clearly where waste exists 
and where frugality can be further increased. They know very 
well how to improve techniques to raise efficiency, and how to 
calculate labor costs, material resources,and funds in order to 
achieve greater, faster, and better results at lower costs. Group 
accounting, organizations for economic supervision, and confer¬ 
ences to analyze economic activities in China’s socialist enter¬ 
prises are some of the better forms of economic accounting ac¬ 
tivities resulting from the masses taking control of financial 
management and the combination of the laboring masses and the 
experts. In the socialist enterprise, the masses, as their own 
masters, participate in group accounting, analysis of economic 
activities, and financial management. This way, not only does 
economic accounting play a greater role in realizing greater, 
faster, and better results at lower costs, but it also presses 
the leadership personnel and the broad cadres to act according 



The Socialist Principle of Frugality 401 


to the Party line and general and specific policies so that the 
enterprise will advance along the socialist road. 

In socialist economic accounting, it is also important to ex¬ 
ercise the role of the experts. Keeping in touch with the vari¬ 
ous workshops and departments in the enterprise makes the ex¬ 
perts more familiar with the situation of the economic activities 
of the whole enterprise and facilitates the leadership and orga¬ 
nization of the various economic activities. Of course, the ex¬ 
perts must also go down to the production forefront, fully rely 
on the masses, strengthen investigation and research, respect 
the creativity of the masses, and promptly solve problems of 
economic accounting arising in the process of production. Only 
thus can their proper role be fully exercised. 

The System of Economic Accounting Is a Manag em ent 
Syste m of the So ci alist En t erpr ise 

T he System of Ec on omic Accounting Embo die s the 
Relati ons b etween t he Stat e and State Ent erpr ises 
and the Relations among Enterprises 


After the socialist country establishes a socialist state econ¬ 
omy, how should the state enterprise be managed? 

The socialist state economy based on the socialist state 
ownership system is the property of the whole laboring people. 
The socialist state possesses and manages the state economy 
as the representative of the whole laboring people. The social¬ 
ist state stipulates production and operational plan assignments 
for the state enterprise and centrally allocates the output and 
earnings of the state enterprise to meet the needs of the state 
and the people. 

Does state management of the state economy imply that there 
is no relative economic independence in the many state enter¬ 
prises ? Does this mean that all means of production and com - 
pensation for personnel are provided free to the state enter¬ 
prise, that all products of the state enterprise are passed on to 
the state without any compensation, and that there is no independent 



402 Fundamentals of Political Economy 


accounting of profit or loss in the state enterprise ? This kind 
of management system existed in history and is called the free 
supply system in enterprise management. In the 1918 to 1920 
period of military communism in the Soviet Union, this system 
of management of state enterprises was adopted. It was neces¬ 
sary under the special historical condition of military commu¬ 
nism. But it is not practicable under the general conditions of 
building socialism. Under the condition of a free supply sys¬ 
tem, the absence of an independent accounting of profit and loss 
would make it difficult to detect where efficiencies or waste 
existed in the process of production and operation. Thus, it 
would be unfavorable to mobilizing the operation activism and 
strengthening the responsibility of the working personnel of the 
state enterprise. This would be in contradiction to the law of 
frugality. 

Then, is it all right to let state enterprises be independently 
responsible for their profits and losses ? This is even less 
practicable. If this were the case, the socialist state ownership 
system could exist only in name and would degenerate into an 
enterprise ownership system, a small group ownership system, 
and ultimately a private ownership system. The economic law 
of capitalism would certainly exert itself. 

In socialist society, the economic management of enterprises 
by the state objectively requires a system such as the system 
of economic accounting. What is the economic accounting sys¬ 
tem ? In simple terms, it is an economic management system 
which guarantees the central leadership of the state and at the 
same time permits the relatively independent operation of en¬ 
terprises. 

As early as 1942, Chairman Mao brought up the principle of ''cen¬ 
tralization in leadership, and decentralization in management” in 
his directive to establish an economic accounting system in all state 
sectors of the economy. Centralized leadership means planned 
management of state enterprises according to centralized lines, 
directives, and policies and, in the light of concrete conditions, 
assigning enterprises various production targets including va¬ 
riety, quantity, quality, product value, labor productivity, costs. 



The Socialist Principle of Frugality 403 


and profits to be turned over to the state. The enterprise must 
be responsible for the state plan and fulfill the various targets 
assigned by the state. Decentralized management means state al¬ 
location of funds to state enterprises according to their produc¬ 
tion and operational needs. Enterprises use funds allocated by 
the state and organize production, supply, and marketing activi¬ 
ties according to the plan assignments set up by the state. Ev¬ 
ery state enterprise possesses some relative independence. It 
is responsible for its own profit and losses and relies on its 
own income to pay for its expenses and to furnish accumulation 
to the state. Decentralized management under centralized state 
leadership requires, on the one hand, that the state enterprise 
improve management of production and operation, strengthen 
economic accounting, and guarantee the fulfillment of the state 
plan. On the other hand, the state must create the necessary 
conditions for the state enterprise to improve production and 
operation, such as the prompt announcement of production plans 
and the proper organization of raw materials supply and pro¬ 
duction cooperation. The management of the state enterprise 
by the state through the economic accounting system guarantees 
centralized leadership by the state over state enterprises and 
also facilitates the enterprise’s exercise of socialist opera¬ 
tional activism. It both avoids excessive control unfavorable 
to enterprise economic accounting and prevents excessive en¬ 
terprise independence which may lead to the capitalist tendency 
of free operation. 

Under the system of economic accounting, the characteristic 
feature of the economic relations among state enterprises is 
joint cooperation but independent accounting. State enterprises 
are the property of the proletariat and the whole laboring peo¬ 
ple. They belong to the same owners. They are related not only 
by the division of labor, but also by the fact that their identical 
basic interests require them to coordinate and closely cooperate 
on their own initiative. They are fundamentally different from 
capitalist enterprises based on the private ownership system. 
However, under the system of economic accounting, state enter¬ 
prises are all units with relatively independent accounting and 



404 Fundamentals of Political Economy 


independent operation. Economic transactions and cooperation 
among them must be recorded to facilitate the calculation of 
economic benefits. The exchange of manpower, material re¬ 
sources, and funds among enterprises must therefore be in¬ 
spired by the cooperative style of communism and follow the 
principle of equivalent exchange. 

The above-mentioned relations between the state and state 
enterprises and among state enterprises under the system of 
economic accounting enable the state enterprises to fully exer¬ 
cise their operation responsibility and activism under the cen¬ 
tralized leadership of the state. Lenin once pointed out: "The 
purpose of establishing enterprises on the basis of an economic 
accounting system is to make them responsible, and totally re¬ 
sponsible, so that the enterprises will not run at a loss." (12) 
Some people wonder, since all state enterprises are state prop¬ 
erty, why it is necessary to have such a refined accounting sys¬ 
tem among them. This idea, which negates the system of eco¬ 
nomic accounting, violates the socialist principle of frugality. 

In socialist society, increases in production and the practice of 
economy rely primarily on the Party's ideological and political 
work to raise the consciousness of the cadres and the masses. 
But it is also necessary to establish a system of responsibility 
with respect to operation and management. If the system of eco¬ 
nomic accounting were not implemented, it would not be favor¬ 
able to strengthening the operational responsibility of the man¬ 
agement personnel, and substantial waste of manpower, mate¬ 
rial resources, and funds would result. 

Corresponding with the duality in the socialist production 
process, the state enterprise must, in its process of economic 
accounting, calculate output, variety, and quality in light of their 
use value. It must also calculate costs, prices, profits, and so 
forth in light of their exchange value. Plan targets assigned by 
the state to state enterprises in its management through the 
system of economic accounting include product variety, speci¬ 
fications, quantity, quality, and other material targets as well 
as the value targets such as costs, output value, and surrendered 
profits. Material targets and value targets are complementary 



The Socialist Principle of Frugality 405 


and necessary. But, the existence of value categories indicates 
the existence of commodity production and the existence of con¬ 
tradictions between use value and exchange value in commodi¬ 
ties. The proletariat must develop production to satisfy the 
needs of the socialist state and the people according to the re¬ 
quirements of the basic socialist economic law. They must cor¬ 
rectly handle the contradictions between use value and exchange 
value and realize greater, faster, and better results at lower 
costs throughout the whole economy. The agents of the bour¬ 
geoisie in the socialist economy will certainly exploit the con¬ 
tradictions between use value and exchange value to push the 
revisionist line of "producing more if profits are high and less 
if profits are low; don't produce if there are no profits" and 
conspire to restore capitalism. Therefore, the process of im¬ 
plementing the system of economic accounting will be full of the 
struggle between the two classes, the two roads, and the two 
lines. To win victory in this struggle, we must correctly under¬ 
stand and use the various value categories in the system of eco¬ 
nomic accounting. 

Correctly Use the Value System to Do a Good 
Job in the System of Economic Ac c ountin g 

Capital funds, production costs, profits, and other value cate¬ 
gories in the socialist economic accounting system reflect so¬ 
cialist production relations. They are essentially different from 
capital funds, production costs, profits, and other categories in 
the capitalist economy. 

Capital funds in the socialist state enterprise are state prop¬ 
erty and are fundamentally different from capital in the capital¬ 
ist enterprise. Capital is created by surplus Value and reflects 
the exploitative relations of capital over hired labor. Capital 
funds in the socialist state enterprise are that part of the accu¬ 
mulated state wealth used for production and operation. The use 
of these funds by the enterprise to engage in production and op¬ 
erational activities follows the requirements of the basic social¬ 
ist economic law and serves to expand reproduction and satisfy 


406 Fundamentals of Political Economy 


the ever-increasing needs of the state and the people. The ra¬ 
tional use of capital funds has tremendous significance in de¬ 
veloping the socialist economy. 

The production funds of the state enterprise can be classified 
as fixed capital and working capital according to the nature of 
their circulation in the production process. The material form 
of fixed capital funds is manifested by machines, plants, and so 
forth. The full exploitation of fixed capital assets is equivalent 
to the expansion of production capacity with a given amount of 
fixed assets. The state must stipulate a rational depreciation 
method and depreciation rate for fixed assets for the state en¬ 
terprise (including visible and invisible depreciation) in order 
to ensure a continuous replacement of the fixed assets of the 
enterprise and permit necessary technical innovation. This is 
a necessary economic condition for the enterprise to maintain 
simple reproduction and a certain degree of expanded reproduc¬ 
tion. The state also allocates to state enterprises a certain 
amount of working capital for their own use. If their needs ex¬ 
ceed their allocated quota, they can borrow funds from the state 
bank. This is instrumental in urging the enterprises to accel¬ 
erate the turnover of working capital and continuously reduce 
the ratio between production and funds (the amount of working 
capital funds required for each 100 yuan of production) through 
the correct calculation of the inventory quota of various mate¬ 
rials and goods and the consumption quota of raw materials and 
fuel per unit output, and reduction of the production cycle, the 
improvement of production and marketing work, and other 
means. 

The production cost of socialist products and the production 
cost of capitalist products are two essentially different eco¬ 
nomic categories; Capitalist production cost is capital con¬ 
sumption. The reduction of production costs in a capitalist en¬ 
terprise indicates capital saving and the intensification of labor 
exploitation. Production costs in a socialist enterprise are ex¬ 
penses connected with the production of a certain amount of 
products. Because enterprises under the economic accounting 
system have to depend on income from the sale of products to 



The Socialist Principle of Frugality 407 


pay for their expenses and to obtain profits, the continuous re¬ 
duction of production costs indicates the saving of labor time 
and higher labor productivity. More accumulation is thus avail¬ 
able to the state or the collective. The role of cost reduction 
in socialist construction can be gauged by the following figures: 
According to 1972 data, every 1 percent reduction in total costs 
in China's industrial enterprises amounted to enough capital 
investment for three Yangtze River bridges in Nanking. 

Profits in socialist state enterprises are essentially differ¬ 
ent from profits in capitalist enterprises. Capitalist profits 
consist of transformed surplus value expropriated by the cap¬ 
italist. Profits in socialist enterprises are the net social in¬ 
come created by the laboring masses. They are concentrated 
in the hands of the state through surrendered profits and taxes 
and are mainly used to expand socialist production and improve 
the people's livelihood. 

Profits in the socialist economy can also be looked at from 
the viewpoint of the whole national economy. Under certain con¬ 
ditions, the socialist state can allow some enterprises to just 
break even or even to run at losses. For example, some inte¬ 
rior and local industrial enterprises established to effect a 
more rational geographical distribution may not be making 
profits for the time being because of unfavorable conditions. 
But, the development of these industries is favorable to the 
long-term interests of the national economy and the establish¬ 
ment of a strategic, strong, and stable hinterland. Therefore, 
even though these enterprises do not make any profit for the 
time being, the state still supports their development. Another 
example is that some enterprises producing certain products, 
especially new products, new materials, and products which 
support agriculture, may run at losses within a certain period 
of time. But the development of these products is instrumental 
in industrial construction and agricultural production. Tempo¬ 
rary and planned losses can be allowed for the interests of the 
whole national economy and to consolidate the worker-peasant 
alliance. Needless to say, the enterprise must mobilize the 
masses to actively reduce production costs by improving 



408 Fundamentals of Political Economy 


production techniques and labor productivity and change losses 
into profits. These profits from the viewpoint of the whole na¬ 
tional economy are called "advanced profits." These advanced 
profits embody the superiority of the socialist system. Of 
course, this does not mean that profits in industrial enterprises 
and sectors are no longer important and losses can be legiti¬ 
mately made because of poor operation on the part of individual 
enterprises. Profits of the whole national economy are ulti¬ 
mately based on profits from individual enterprises and sectors. 
Therefore, enterprises suffering temporary losses should try 
hard to improve operation, reduce production costs, reduce 
losses, and turn losses into profits to provide more accumula¬ 
tion to the state. 

Profits from socialist state enterprises are the main source 
of socialist accumulation. The socialist enterprise must criti¬ 
cize and repudiate putting "profits in command” on the one 
hand and oppose erroneous ideas that pay no attention to costs, 
profits, and increasing accumulation for the state on the other. 

Having "profits in command" puts the achievement of the 
highest possible profits in the primary position. Production is 
guided only by profit. Production plan assignments from the 
state are ignored. This is a capitalist principle of operation 
and must be criticized and repudiated. Under the socialist sys¬ 
tem, because of different production conditions and supply- 
demand conditions, state plan prices may not always be identi¬ 
cal with the value of products. Other things being equal, when 
the product price is higher than the value, profits are higher. 

If the reverse is true, profits are lower. If state enterprises 
violate plan targets set by the state with respect to quantity and 
variety and expand production of products with high production 
value and high profits and reduce production of products with 
small production value and low profits, this is a manifestation 
of putting "profits in command." The "total economic accounting 
system" implemented by the Soviet revisionist renegade clique 
to put profits in command is an important measure to restore 
capitalism. The essence of the "total economic accounting sys¬ 
tem" is the thoroughly capitalistic principle of profits. In the 



The Socialist Principle of Frugality 409 


"total economic accounting system," "the most important sum¬ 
mary indicators of enterprise finance are profits and the profit 
rate." To a very large extent, the enterprise can determine the 
variety and quantity of production according to the size of ex¬ 
pected profits. To increase profits, the enterprise can dismiss 
workers and increase labor intensity to "reduce production 
costs." This "total economic accounting system" that puts prof¬ 
its in command is an exploitative system imposed on the labor¬ 
ing people of the Soviet Union by the Soviet revisionist bureau¬ 
cratic monopoly bourgeoisie. 

The socialist state enterprise must also make profits. But 
there is no similarity to having profits in command. The social¬ 
ist state enterprise only allows socialist profits to be increased 
by following the Party's line and general and specific policies, 
fulfilling the assignments specified by the state plan, and in¬ 
creasing production and practicing economy with proletarian 
politics in command. 

Through increasing production and practicing economy, the 
socialist state enterprise increases profits and provides more 
accumulation to the state. In this way, it contributes to social¬ 
ist revolution and socialist construction. Revenue from state 
enterprises (surrendered profits, taxes, and so forth) repre¬ 
sents more than 90 percent of the revenue in China's state bud¬ 
get. If the enterprise cannot actively increase accumulation for 
the state, or even suffers unnecessary losses, revenue in the 
state budget will be reduced, thus adversely affecting socialist 
revolution and construction and the discharge of the obligations 
to internationalism. 

In summary, the state's implementation of management by 
means of the economic accounting system in state enterprises 
is for the purpose of better realizing this directive of Chairman 
Mao: "Any socialist economic enterprise should pay attention 
to utilizing manpower and equipment as fully as possible, im¬ 
proving labor organization as much as possible, improving op¬ 
erations and management and raising labor productivity, econo¬ 
mizing all manpower and material resources that can be econo¬ 
mized, and adopting labor competition and economic accounting 



410 Fundamentals of Political Economy 


to reduce costs and increase personal income and accumula¬ 
tion year after year." ( 13 ) 

Strengthen Management with the Economic Accounting 
System in the Rural People’s Communes 


The means of production and labor power under the socialist 
collective ownership system belong to individual collective or¬ 
ganizations of the laboring people. Each collective economic 
organization is an accounting unit. It organizes production un¬ 
der the direction of the state plan and sells commodities ac¬ 
cording to prices set by the state. It operates independently 
and is responsible for its profits and losses. Production and 
income distribution are carried on within the collective. At 
the same time, accumulation is provided to the state through 
taxes. The socialist national economy is a unified whole. The 
unified national economic plan drawn up by the state includes 
the state economy as well as the collective economy. 

It is necessary to practice economic accounting not only in 
the management of state enterprises but also in the sector of 
the collective economy because it will strengthen the economic 
accounting system and consolidate and promote the development 
of the collective economy. 

China's socialist economy under the collective ownership sys¬ 
tem of the laboring masses exists in agriculture, industry (in¬ 
cluding the handicraft industry), transportation, and commerce. 
But it is most important in agriculture. Here we are mainly 
concerned with the problem of strengthening management by 
means of the economic accounting system in the collective 
economy of the rural people's commune. 

China's rural people's commune at present uses the three- 
level ownership system of the commune, the production bri¬ 
gade, and the production team. The commune, the brigade, and 
the production team are all accounting units which operate inde¬ 
pendently and are responsible for their profits and losses. Fi¬ 
nancial transactions among the commune, the production bri¬ 
gade, and the production team and the allocation of material 



The Socialist Principle of Frugality 411 


resources and labor power must be based on the principle of 
"equivalent exchange on a voluntary and mutually profitable 
basis." 

In the economy of the rural people’s commune under the col¬ 
lective ownership system, management by means of the eco¬ 
nomic accounting system is implemented in commune-operated 
enterprises by the commune and in brigade-operated enter¬ 
prises by the brigade. The commune and the brigade exercise 
unified leadership over their respective enterprises, allocate 
a certain amount of capital funds to each enterprise, demand 
that they use these funds in a responsible way to fulfill the pro¬ 
duction plan assignments given to them by the state, the com¬ 
mune, and the brigade, and require them to discharge their ex¬ 
penses with their incomes and fulfill or overfulfill the accumu¬ 
lation assignments set by the commune and the brigade. With 
the development of commune- and brigade-operated enterprises 
and with the development of the collective economy at various 
levels, more and more units within the people’s commune are 
adopting management by the economic accounting system, and 
management by the economic accounting system must be fur¬ 
ther strengthened. 

The production team is a basic accounting unit which oper¬ 
ates independently. The collective fund of the production team 
is not allocated by the production brigade or the commune. It 
comes from the contribution and accumulation of the members. 
The commune and the brigade should lead, help, and support the 
production team to develop the collective economy. They cannot 
use the funds of the production team to develop the commune or 
brigade economies. Between the production brigade and the pro¬ 
duction team, there does not exist a relationship of management 
by the economic accounting system. This is to say, the produc¬ 
tion brigade is not ultimately responsible for profits or losses 
incurred by the production team. The teams themselves are 
responsible for their own profits and losses. 

Although there does not exist a relationship of management 
by the economic accounting system among the commune, the 
production brigade, and the production team, the production 



412 Fundamentals of Political Economy 


team must also adopt economic accounting. Economic account¬ 
ing in the production team consists primarily of calculating the 
annual consumption of embodied and live labor in production, 
accounting for annual income and expenses, reducing expenses 
and costs, avoiding nonproduction labor and other expenditures, 
and firmly opposing careless expenses and waste. Especially 
important is the establishment of a sound system of financial 
management. All financial expenditures must be subject to the 
required approval procedure. Democracy in financial matters 
must be practiced. All incoming and outgoing items must be 
announced monthly to the members. People must have separate 
responsibilities for food grain, material resources, money, and 
accounts to prevent excessive consumption, theft, and losses. 
Once economic accounting is strengthened and the system of fi¬ 
nancial management is improved, production costs can be re¬ 
duced, the accumulation of production funds and members’ in¬ 
come can be increased, and the broad members will love the 
collective economy all the more and will struggle for further 
consolidation and development of the collective economy and 
oppose spontaneous capitalist tendencies. 

Major Study References 


Marx, Engels, Len i n, and Stalin on Communist Society , 
Chapter 7. 

Chairman Mao, "Comments on ’To Run a Cooperative with 
Diligence and Economy.’ ’’ 

Chairman Mao, "On the Correct Handling of Contradictions 
among the People," Section 11. 

Review Problems 


1. Why do we say that only socialist society is capable of 
practicing total frugality ? 

2. What are the effects of adopting management by the eco¬ 
nomic accounting system on building the socialist economy with 
greater, faster, and better results at lower costs? 




The Socialist Principle of Frugality 413 


3. How can the issue of profits in the socialist economy be 
correctly handled ? 


Notes 


1) Marx, "'Money’: One of the 1857-1858 Manuscripts 
on Economics," quoted from Marx, Engels, Lenin, and Stalin 
on Commu nist Society , Jen-min ch’u-pan-she, 1958, p. 67. 

2) "On the Correct Handling of Contradictions among the 
People," Selected Re ad ings from the Works of Mao Tse-tung , 
(Type A), Jen-min ch'u-pan-she, 1965, p. 360. 

3) Chairman Mao, "Comments on ’To Run a Cooperative 
with Diligence and Economy,’" Socialist Upsu rge in China’s 
Countryside , Vol. 1, p. 16. 

4) "On the Correct Handling of Contradictions among the 
People," Selected Readings from the Works of Mao Tse-tung , 
(Type A), Jen-min ch’u-pan-she, 1965, p. 361. 

5) Ibid., p. 348. 

6) Marx, Capital , Vol. 3, Jen-min ch'u-pan-she, 1966, p.78. 

7) Marx, Capital, Vol. 1, Complete Works of Marx and En¬ 
gels , Vol. 23, p. 96. 

8) Ibid., p. 579. 

9) Ibid., p. 396. 

10) Ibid., pp. 93-94. 

11) Marx, Capital , Vol. 2, Co mplete W o rks of Marx and En¬ 
gels , Vol. 24, p. 152. 

12) "To the People's Committee on Finance," Complete 
Works of Lenin , Vol. 35, p. 549. 

13) Chairman Mao, "Comments on 'The Experience of the 
Li-tzu-yuan Agricultural Production Cooperative of Chen-ju 
District in Reducing Production Expenses,”' Socialist Upsurge 
in China's Countryside, Vol. 2, p. 768. 






19 

Exchange Is an Economic Form That 
Relates Production to Consumption 


Socialist Exchange and Currency Circulation* 


Most of the products of socialist labor enter the realm of 
production consumption and personal consumption only through 
exchange. What are the characteristics of socialist exchange? 
How is it realized? What are the objective laws governing it? 
In developing the socialist economy, these are the issues that 
must be clearly understood. 

Soci alist E xchang e Poss esses B rand-new 
Qualitie s a nd Characteristics 

Socialist Exchange Is a New 
T ype of Exchange in History 

Exchange is determined by production. The fact that socialist 
production is a new type of production in the history of mankind 
determines that socialist exchange must also be a new type of 
exchange in the history of mankind. To recognize the qualities 
and characteristics of socialist exchange, first and foremost, 
one must see what essential exchange relations actually exist 
in socialist society. 

*Chiao-huan shih lien-hsi sheng-ch’an ho hsiao-fei ti ching- 
chi hsing-shih — she-hui-chu-i chiao-huan ho huo-pi liu-t'ung. 


414 



Exchange: Relating Production to Consumption 415 


For a considerable period of time, there have existed in socialist 
society the following major exchange relations: (1) the exchange re¬ 
lations among socialist state enterprises, the basis of which is 
the relative operational and managerial independence of state 
enterprises; (2) the exchange relations between the socialist 
state economy and the collective economy, the basis of which 
is the existence of two systems of socialist ownership; (3) the 
exchange relations within the socialist collective economy, the 
basis of which is that the means of production and the products 
belong to the different collective economies; (4) the exchange 
relations among peasants, as well as between peasants and the 
urban population and between peasants and the socialist com¬ 
mercial sector, the basis of which is the existence of family 
sideline production carried on by members of the rural people’s 
commune; and (5) the exchange relations between state enter¬ 
prises and their staff and workers, the basis of which is the so¬ 
cialist state’s distribution of personal consumer goods to the 
staff and workers by means of money wages. 

The above five types of exchange can be classified into 
three forms according to the economic relations they re¬ 
flect. 

The first exchange relationship represents one form. This 
is exchange within the socialist state ownership system. Through 
exchange, products pass from one state enterprise to another, 
but they are still state property; no transfer of ownership rights 
is involved. The only change is that these products are used by 
different enterprises. We know that the exchange of commodi¬ 
ties is an exchange between different owners. Exchange between 
state enterprises is not exchange between different owners. 
Therefore, this type of exchange has lost the basic character¬ 
istic of commodity exchange. It begins to resemble the direct 
social distribution of products of the future communist society. 
However, because each state enterprise is still a relatively in¬ 
dependent unit of operation, prices are still set in exchanges, 
and the principle of equivalent compensation is adopted. Thus, 
exchanges between state enterprises still possess certain char- 



416 Fundamentals of Political Economy 


acteristics of commodity exchange.* This form of exchange, 
because it has lost the basic property of commodity exchange, 
should be called product exchange to distinguish it from com¬ 
modity exchange between different owners. 

The second through fourth types of exchange relations repre¬ 
sent another form. Even though there are big differences in 
these three types of exchange relations, some exchanges being ] 
based on the socialist public ownership system and others on 
family sideline production, reflecting the complex relations of ’ 
labor exchange between workers and peasants and among peas¬ 
ants, these types of exchange are still exchanges between dif- \ 
ferent ownership systems or different owners. Here, after an 
exchange, the ownership rights to the products have been trans- i 
ferred. Therefore, they still possess the basic features of gen¬ 
eral commodity exchange. This form of exchange should be 
called commodity exchange. 

The fifth type of exchange relationship differs from the above 
two forms. The way in which the staff and workers of state en¬ 
terprises use their labor compensation to buy consumer goods 
resembles Marx’s description: ”He obtains a certificate from 
society, certifying that he provided a certain amount of labor 
(minus the labor he contributed to the social fund). He uses 
this certificate to get from the society’s accumulation an amount 
of consumer goods equal to the labor he provided. He provides 
society with one form of labor and takes back the whole amount 
in another form." (1) This is also an exchange. The same prin¬ 
ciple is used to regulate commodity exchange. Namely, a cer¬ 
tain amount of labor in one form is exchanged for an equal 
amount of labor in another form. However, this exchange has 
already assumed a new content. The staff and workers of the 
socialist society are the masters of the state and the enter- 


* According to the socialist definition, the primary difference 
between a commodity and a product is that the commodity in¬ 
volves a transfer of ownership through the market mechanism, 
while a product is usually allocated through direct distribution 
without any transfer of ownership. — Editor. 



Exchange: Relating Production to Consumption 417 


prises. They do not sell their labor power. The exchange be¬ 
tween the state and the staff and workers is a special type of 
exchange. It is actually a form of distribution of personal con¬ 
sumer goods among staff and workers in the socialist state. 
This type of exchange, because it involves a transfer of owner¬ 
ship rights and because the same principle used in the exchange 
of commodities of equal value applies here, will still be treated 
in the category of commodity exchange in our later analysis. 

These five types of exchange relations which take three dif¬ 
ferent forms can finally be grouped according to two aspects, 
product exchange and commodity exchange. These two types of 
exchange are different in nature and have their own character¬ 
istics. 

Product exchanges between state enterprises are mainly ex¬ 
changes of means of production. This type of exchange is a link 
between production and production consumption and is directly 
related to production; it is an act of production. 

Because socialist product exchange is directly related to pro¬ 
duction and because socialist production develops in a planned 
and proportional way, the exchange of important means of pro¬ 
duction must be allocated by the state strictly according to the 
plan rather than through market transactions. Although social¬ 
ist commodity exchange is also carried on under the guidance 
of state plans, it cannot be allocated through the plans because 
the objects of exchange, being mainly personal consumer goods, 
can only be exchanged through market transactions. 

Since socialist product exchange is realized through state 
planned allocation, any contradictions in supply and demand can 
be resolved in a planned manner by the state by adjusting pro¬ 
duction or product circulation plans or by economizing and find¬ 
ing substitutes. Here, the law of value no longer has any regu¬ 
latory significance; it merely has a little influence. The law of 
value, however, does have a certain regulatory function in so¬ 
cialist commodity exchange. Although the total amount and com¬ 
position of consumer goods entering circulation are determined 
by the state plans and although the society’s purchasing power 
is also regulated by the state plans, state planning is for the 



418 Fundamentals of Political Economy 


purpose of guaranteeing people's livelihood needs. Through a 
state circulation plan for consumer goods, personal consumer 
goods still go through the market. The socialist state cannot 
dictate what and how much the consumer should buy. Under 
normal circumstances, if the prices of some personal consumer 
goods are too high, their sales volume declines. If their prices 
are too low, their sales volume expands. Having recognized 
this law, the socialist state has to use this regulatory function 
under specified conditions to bring about an equilibrium between 
supply and demand. For example, some luxury commodities can 
be sold in definite amounts at prices higher than their value if 
demand exceeds supply. Conversely, to expand the market and 
satisfy people’s livelihood needs, daily necessities can be sold 
at prices equal to or below their values if they are produced in 
a sufficiently large quantity to meet all demand. 

Product exchange in the socialist society is unprecedented in 
history. Commodity exchange in the socialist society is also 
different in principle from any historical commodity exchange. 
Commodity exchange from the slave society to the capitalist so¬ 
ciety is all based on the private ownership system. With the 
exception of those exchanges of family sideline products pro¬ 
duced by members of rural people’s communes and inhabitants 
of cities and towns, commodity exchange in the socialist society 
is all based on the socialist public ownership system. Its pur¬ 
pose is to satisfy the needs of the state and the people. It is a 
new form of exchange. Under socialist product exchange and 
commodity exchange, there begin to emerge elements of direct 
social distribution of the means of production and consumer 
goods, unfolding the promising prospect of developing from a 
socialist to a communist society. 

Exchange in Turn Promotes the Developm ent of 
Production and the Improvement of People's Livelihood 

In the process of social reproduction, production plays a de¬ 
termining role. However, exchange directly and indirectly re¬ 
acts with it. Engels said: "The two functions [of production and 





Exchange: Relating Production to Consumption 419 


exchange] are always mutually constrained and interdependent. 
They can be called the abscissa and the coordinate of the eco¬ 
nomic curve.” (2) This statement of Engels is applicable to 
commodity as well as to product exchange. 

The development of socialist industrial and agricultural pro¬ 
duction is the material basis of socialist product and commod¬ 
ity exchanges. Chairman Mao pointed out as early as 1942 that 
to "develop the economy and guarantee supplies constitute the 
general policy of our economic and financial work." (3) This is 
to say, only when agricultural production is developed can there 
be enough means of production to satisfy the needs for further 
developing production and expanding capital construction and 
can there be enough consumer goods to enliven the market and 
stabilize prices. Without the development of industrial and ag¬ 
ricultural production, it is impossible to improve socialist 
product and commodity exchanges. 

On the other hand, socialist exchange also plays an immense 
initiating role in the development of socialist industrial and ag¬ 
ricultural production. Through socialist product exchange, the 
exchange of material resources among various regions of the 
country and among various state enterprises in different sec¬ 
tors of the national economy is realized. Through socialist com¬ 
modity exchange, the economic relations between agriculture 
and industry, production and consumption, the economy under 
the state ownership system and that under the collective owner¬ 
ship system, and the urban and rural areas are achieved. State 
material resources departments in charge of socialist product 
exchange actively organize the exchange of the means of pro¬ 
duction among state enterprises. The socialist commercial de¬ 
partments responsible for socialist commodity exchange ac¬ 
tively organize and purchase commodities at the appropriate 
time from the industrial and agricultural production sectors 
and sell them to the consumers in a planned and systematic 
manner. This plays an immense role in rapidly developing the 
national economy in a planned and proportional manner and in 
improving the livelihood of the urban and rural areas. It is also 
an important aspect of consolidating the worker-peasant alliance. 



420 Fundamentals of Political Economy 


The promotional role of socialist exchange with respect to 
production and consumption can only be fully exercised through 
people’s correct handling of the various contradictions in the 
exchange process. 

A very important link In actively promoting the development 
of production through socialist product exchange is whether the 
material resources departments can fully understand and cor¬ 
rectly handle the contradictions between the supply of and the 
demand for the means of production within the state ownership 
system. In the process of high-speed development in the social-, 
ist national economy, on the one hand, the supply of the means 
of production generally increases at a higher speed than that of 
consumer goods. On the other hand, the quantity, quality, vari¬ 
ety, and specifications of the means of production often do not 
fully satisfy the development requirements of socialist construc¬ 
tion. These contradictions between the supply of and the demand 
for the means of production will objectively exist for a long time 
and will be manifested in the various departments of the national 
economy, various regions, and various state enterprises. Only 
through regular study and correct management, properly bal¬ 
ancing plans and matching supply with demand, can a continuous • 
relative balance between the production of, and the requirements, 
for, means of production be maintained and rapid development i 
of socialist production be achieved. 

The process of socialist commodity exchange is even more 
complex. The objects of commodity exchange are mainly con- j 
sumer goods, but they also include a certain amount of means f 
of production. Relations between the state economy and the col-1 
lective economy, within the state economy, and among the col- | 
lective economies all exist in commodity exchange. In complex j 
commodity exchanges, the contradictions between supply and | 
demand will also exist for a long time. It is concretely mani- 1 
fested in the contradictions within the specialized commercial j 
departments responsible for commodity exchange work, agri- 1 
culture, industry, and consumers. ’ 

The contradictions between socialist commerce and agricul- ■ 
ture are mainly manifested by the proportions of agricultural 



Exchange: Relating Production to Consumption 421 


and sideline products that are purchased or retained, by pur¬ 
chasing prices, by the forms in which such products are pur¬ 
chased, and by the supply and prices of industrial products. 

Some part of agricultural and sideline production is commodity 
production for the satisfaction of social needs. The other part 
is self-sufficient production to satisfy the peasant’s own needs. 

In the process of purchasing, it is necessary to arrange suitably 
the proportions of agricultural and sideline products to be pur¬ 
chased or retained so that the state can obtain the required 
amount of agricultural and sideline products and so the peasant 
can also take care of his production and livelihood. At the same 
time, when socialist commerce purchases agricultural and side¬ 
line products, it must also be good at sending industrial prod¬ 
ucts to the rural areas. It must strive to ensure the inflow and 
outflow of goods to satisfy fully the requirements of both social¬ 
ist agricultural production and the peasants’ livelihood. The 
purchasing prices of agricultural and sideline products and the 
supply prices of industrial products directly affect the income 
of the peasant, the expansion of agricultural production, and 
state accumulation. It is necessary to determine reasonable 
purchasing prices for agricultural and sideline products and 
supply prices for industrial products so that an exchange rela¬ 
tionship of equivalent values between industrial and agricultural 
products can be maintained. Handling the contradictions between 
commerce and agriculture according to correct principles 
makes it possible to do a good job in commodity exchanges be¬ 
tween the urban and rural areas and is favorable to mobilizing 
the activism of the peasants in socialist production, promoting 
the development of industrial and agricultural production, and 
consolidating the worker-peasant alliance. 

The contradictions between socialist commerce and industry 
are mainly internal contradictions in the state economy. State 
industry is engaged in production. State commerce is engaged 
in marketing. The contradictions between industry and com¬ 
merce are mainly contradictions involving the quantity, quality, 
variety, and price of industrial products on the one hand and 
market requirements on the other. There is a relative stability 



422 Fundamentals of Political Economy 


in industrial production. But market requirements change. The 
contradictions between relatively stable industrial production 
and variable market requirements often bring about contradic¬ 
tions between industry and commerce. Another contradiction 
is the lack of coordination between the production plan and the 
marketing plan, which results from inadequate investigation and 
research in the development, changes, and laws of production 
and the market. The influence of capitalist ideas of operation 
or the interference of the revisionist line further aggravates 
the contradictions between industry and commerce. To cor¬ 
rectly handle the contradictions between industry and commerce, 
the commercial departments must follow the requirements of 
the basic economic law of socialism, strengthen investigation 
and research, duly report the consumers' requirements to the 
industrial departments, bring about closer cooperation between 
industry and commerce, and actively help the industrial 
branches develop production, expand variety, and raise quality 
in order to together better satisfy the needs of the state and the 
people. 

The contradictions between supply and demand in the com¬ 
modity exchange process are ultimately manifested as contra¬ 
dictions between socialist commerce and the broad masses of 
consumers. With the rapid growth of industrial and agricultural 
development, the purchasing power of the people has been con¬ 
tinuously raised. It is natural that they require socialist com¬ 
merce to provide a better and greater variety of consumer 
goods. However, the growth of social production always lags 
behind the growth of social demand. Therefore, correctly han¬ 
dling the contradictions between commerce and agriculture and 
between commerce and industry is the precondition for cor¬ 
rectly handling the contradictions between commerce and the 
consumers. But this is not enough. To correctly resolve the 
contradictions between commerce and the consumers, those 
who work in commerce must further establish the concept of 
wholeheartedly serving the people. China's commercial work¬ 
ers put it well: "The counter is limited to three feet high, but 
service to the workers, peasants, and soldiers is unlimited." 



Exchange: Relating Production to Consumption 423 


Only when this mental outlook is established can socialist com¬ 
merce actively organize supplies of commodities, rationally al¬ 
locate commodities, and properly arrange the socialist market 
according to the various requirements of the workers, peasants, 
and soldiers. At the same time, in organizing for the people’s 
livelihood, socialist commerce should not merely passively 
adapt to consumer demand; it should actively influence con¬ 
sumption, direct consumption, and do a better job of organizing 
for the people’s livelihood according to the development condi¬ 
tions of socialist industrial and agricultural production and the 
conditions of national resources. 

The sphere of distribution is not merely a place where prod¬ 
ucts and commodities are exchanged. It is also a battleground 
for class struggle between the proletariat and the bourgeoisie. 
This battleground is familiar to the bourgeoisie, but not as fa¬ 
miliar to the proletariat. New and old bourgeois elements re¬ 
sort to bribery, speculation, and other illegal means and to in¬ 
citing improper practices such as barter and backdoor deals to 
corrode people's ideology and undermine socialism.* The 
agents of the bourgeoisie inside the Party try hard to push the 
revisionist line which aims at restoring capitalism in the cir¬ 
culation sphere. The clique of Liu Shao-ch'i, that renegade, 
traitor, and scab, widely instituted the idea of putting "regula¬ 
tions in command" in product exchange, advocated "service to 
all the people" in commodity exchange, and encouraged the evil 
practice of backdoor deals. This is a betrayal of Marxism. To 
push back the frantic attack of the bourgeoisie, we must hold 
firmly to Chairman Mao’s proletarian revolutionary line, criti¬ 
cize the revisionist line, hold firmly to having proletarian poli¬ 
tics in command, and observe and handle problems with the 
viewpoint of class struggle so that socialist exchange not only 
promotes production development and improves the people's 
livelihood, but also consolidates the socialist economic base 
and proletarian dictatorship. 

♦Implied here is the unauthorized or illegal transactions be¬ 
tween state enterprises. — Editor. 



424 Fundamentals of Political Economy 


Socialist Exchange Must Have Appropria te 
Forms of Organization 

Product Ex chang e Need s an Ap propriate 
Supply System and Channels 

The circulation process of the means of production from pro- 
duction to production consumption is very complex. Appropriate 
forms of exchange under the guidance of a central state plan are 
required so that the means of production can go from the pro¬ 
duction sphere to the production consumption sphere at the 
proper time, in the right amount, and with quality to promote 
the development of production. 

The form of product exchange reflects the interrelations in 
product exchange among enterprises, among regions, and among 
departments within the state ownership system and between the 
central economic departments and the local economic depart¬ 
ments. China's socialist construction experience tells us that 
it is very significant to set up rationally a system of supply of 
material resources in handling these interrelations. 

China's material resources supply system adopts the principles 
of "unified leadership, control by level, and specialized operation" 
in line with Chairman Mao's great strategic policy of "be prepared 
for war, be prepared for natural disasters, and do everything for 
the people" and his teaching "Let the local units do more things 
under a unified central plan." As manifested in product exchange, 
the state classifies the means of production into three groups 
according to their significance and functions in the national 
economy. The first group is "material resources under unified 
allocation." These resources are vital for developing the na¬ 
tional economy. Examples are steel, copper, and important 
mechanical and electrical equipment. They are allocated cen¬ 
trally by the state planning departments to ensure the needs of 
the state's important construction projects. The second cate¬ 
gory is "material resources which are under the control of a 
department [of the central government]." These are important 
resources in the national economy, such as tin, nickel, and 



Exchange: Relating Production to Consumption 425 


those which are either highly specialized or are used as supple¬ 
ments to other products, such as metallurgical furnace materi¬ 
als. They are allocated by the responsible control departments 
in a balanced manner. The third group is "material resources 
under local control." These are resources not included in the 
first and second groups which are controlled by provinces, mu¬ 
nicipalities, and autonomous regions. The material resources 
required for socialist construction are numerous and varied. If 
they were all centrally controlled by the state planning depart¬ 
ment, socialist construction could be adversely affected. "Uni¬ 
fied leadership, managed by different levels and operated ac¬ 
cording to specialization, meets the need for building socialism 
with greater, faster, and better results at lower costs. 

At present, based on the above principle, China's material 
resources supply system is selectively and systematically 
adopting the method of "regional balance, differential allocation, 
regulation of variety, and guaranteed delivery to the state under 
a unified state plan." This requires that, with a unified state 
plan and guaranteed delivery to the state as preconditions, lo¬ 
cally produced raw materials and equipment are balanced lo¬ 
cally and complemented locally. This method supports the im¬ 
plementation of the great strategic policy of preparing for wars, 
preparing for natural disasters and doing everything for the people. 
It encourages the gradual establishment of an industrial system 
among various cooperation regions or even among provinces, the 
mobilization of central and local activism, the proper handling 
of the interrelations between the central and local units as well 
as among regions and among enterprises, and the promotion of 
production growth. 

After a proper material resources supply system is estab¬ 
lished, appropriate concrete forms of product exchange and 
channels for it are also required to expedite the flow of goods 
so that the means of production can be circulated from one state 
enterprise to,another state enterprise more quickly and eco¬ 
nomically through rational circulation links. At present, there 
are basically three types of concrete forms and circulation 
channels in China's product exchange. 



426 Fundamentals of Political Economy 


The first is direct supply. This is a form of exchange in 
which raw materials and equipment produced by a state enter¬ 
prise are directly delivered to the user without going through 
any middle link. However, it is arranged under a unified state 
plan and according to the supply contract among enterprises. 
This form of product exchange shortens the circulation time, 
reduces circulation expenses, stabilizes the supply and demand 
relations, and helps improve product equality. It is the direc¬ 
tion of development for the form of product exchange. But, this 
form of exchange cannot be used under all circumstances. In 
general, it is suitable for circulation among those enterprises 
where supply and demand volumes are large and the supply - 
demand relation of products is stable. 

The second is supply by material resources branches. This 
is also conducted under a unified state plan. Like the previous 
form of exchange, it is also within the scope of plan allocation. 
However, it must go through the material resources branches. 

In other words, according to the product supply contract, raw 
materials and equipment produced by a state enterprise must 
first be collected and sent to state material resources branches. 
After necessary processing and arrangement by the material 
resources branches, they are supplied to enterprises for con¬ 
sumption. Raw materials and equipment subject to this form of 
exchange are generally in great demand, but the demand from 
individual units is small. If they were all to be delivered di¬ 
rectly by the producing enterprise to the consuming enterprises, 
the producing enterprise would have to have a vast supply orga¬ 
nization in order to deliver goods on time. Consequently, al¬ 
though it seems slower and more expensive to use state mate¬ 
rial resources branches rather than direct supply, in fact, it 
means that storage charges and transportation fees can be re¬ 
duced and the means of production can be supplied faster to the 
consuming enterprises. In addition, because the state needs to 
keep a reserve of some means of production and state enter¬ 
prises may also have a sudden demand for some means of pro¬ 
duction because of changes in plan assignments, state material 



Exchange: Relating Production to Consumption 427 


resources branches are needed to form a middle link for man¬ 
aging and organizing the supplies of the means of production. 

The third is supply organized by commercial branches. These 
are products which can be used for production consumption or 
personal consumption. Some are small spare parts and small 
metal tools with assorted specifications and limited usage. It 
is more convenient to have these small and assorted means of 
production managed by commercial branches so that they can 
be bought by the user unit in the market at any time. 

The T hree Channels of Commodity Exchange 

Socialist commodity exchange must also have appropriate 
channels in order to facilitate goods circulation and fully exer¬ 
cise its function. At the present stage, China’s socialist com¬ 
modity exchange is conducted through the three channels of 
state commerce, commerce on the basis of collective owner¬ 
ship, and trade fairs. These three channels of commodity ex¬ 
change constitute China's unified socialist market. They per¬ 
form different functions according to their different positions. 

State commerce is the main body and leading force in the uni¬ 
fied socialist market. It leads the commerce of the collective 
ownership system and rural trade fairs. Most of the commodi¬ 
ties and all wholesale links are controlled by state commerce. 
Commodities are delivered to the consumer in a planned man¬ 
ner by state commerce according to the principle of overall de¬ 
sign, appropriate arrangement, and guaranteeing key points. 

Commerce taking place under the collective ownership sys¬ 
tem assists state commerce. Commerce under the collective 
ownership system refers mainly to rural supply and marketing 
cooperatives. Urban cooperative stores also belong in the cate¬ 
gory of commerce under the collective ownership system. 

In China, after the proletariat seized political power, it was 
faced with an extremely broad rural market in which the indi¬ 
vidual economy was dominant. If this market were not occupied 
by socialism, it would be occupied by capitalism and become 



428 Fundamentals of Political Economy 


a hotbed for capitalism. While actively developing state com¬ 
merce, the rural laboring people were mobilized to organize 
rural supply and marketing cooperatives to purchase agricul¬ 
tural and sideline products and to supply industrial products. 

It was extremely necessary to make the people assistants of 
state commerce in the rural areas in order to regulate supply 
and demand and control the market. Experience has shown that 
the establishment and development of the supply and marketing 
cooperative in China has played a very important role in strength¬ 
ening socialist commerce, severing the relationship between the 
individual economy and the capitalist economy, and promoting 
the socialist transformation of the individual economy. 

The cooperative stores were originally formed by individual 
workers in the urban areas. They were a transition from indi¬ 
vidual commerce to state commerce. At the present stage, the 
existence of cooperative stores makes it convenient for the ur¬ 
ban inhabitants to buy daily commodities. 

Rural trade fairs are a supplement to socialist commerce. 
The small quantities of family sideline products produced by 
the collectives' peasants, with the exception of those retained 
for their own consumption and those sold to the state, can be 
marketed at rural trade fairs according to state regulations. 
Trade fairs are places where peasants exchange what they have 
for what they want and where peasants exchange directly with 
urban people. No middlemen are allowed. 

Rural trade fairs have a dual character. On the one hand, 
they promote the development of agricultural and sideline pro¬ 
duction, increase the team members' income, and enliven the 
rural economy. On the other hand, rural trade fairs are an un¬ 
planned market. If they are allowed to develop without control, 
they will interfere with the socialist planned market and nur¬ 
ture capitalist power. Under the socialist system, if rural trade 
fairs are to be allowed to exist for a period of time, leadership 
and management over them must be strengthened in order to 
foster their positive role and restrict their negative role so 
that they better serve the socialist economy. 



Exchange: Relating Production to Consumption 429 


Money Must Be the Servant 
of Socialist Exchange 


Money under t he Socialist System Begins 
to Acquire New Properties and Functions 


In human history, money appeared as a medium of exchange 
when trade developed to a certain degree. Since commodity 
production and commodity exchange still exist in socialist so¬ 
ciety, money is still necessary. 

In socialist society, money is not only related to socialist 
commodity production and commodity exchange; it is also re¬ 
lated to socialist product production and product exchange. The 
economic conditions of socialism have changed the nature and 
functions of money. 

Money, in its relation to commodity production and commod¬ 
ity exchange, is still an accounting unit under the socialist sys¬ 
tem, but it no longer reflects capitalist production relations. 
Capitalist commodity production and commodity exchange, which 
embody the exploitation of hired labor, are no longer associated 
with this money. It is associated instead with socialist commod¬ 
ity production and commodity exchange, which embody the ex¬ 
change of labor between the worker and the peasant. 

The means of production exchanged among state enterprises, 
so far as their leading aspect is concerned, are no longer com¬ 
modities but products. However, in its planned leadership over 
the national economy, the socialist state must use money as a 
unified standard to measure social labor whether in the formu¬ 
lation of production targets, the allocation of material resources, 
or the distribution of the total social product. This means that 
money under the socialist system begins to have a new property, 
namely, a means to measure labor in national economic plan¬ 
ning work. And the further we go, the more important this new 
property of money becomes. In the course of development, with 
the gradual elimination of commodity production and commodity 
exchange, money as an accounting unit will also gradually be 


430 Fundamentals of Political Economy 


eliminated. Even then, however, a means of measuring labor 
will still be necessary in national economic work. 

In the distribution of personal consumer goods in socialist 
society, in addition to being an accounting unit, money also 
serves as labor coupons. The distribution of personal consumer 
goods in the departments under socialist state ownership is 
conducted this way: the state pays money wages to the staff and 
workers according to the principle of "from each according to 
his ability, to each according to his labor." The staff and work¬ 
ers use the money to buy the consumer goods they need. Here, 
the role of money is similar to that of labor coupons. Marx 
once said: "Labor coupons only show the share of common la¬ 
bor contributed by the individual producer and t